In a May 16 research note, analyst John Freeman reported that Raymond James reiterated its Outperform rating on SM Energy Co. (SM:NYSE) after updating its model on the company to incorporate its latest update and management's comments.
Freeman highlighted that SM Energy anticipates and remains committed to generating free cash flow in Q2/19. "Overall, our model puts SM in slightly positive free cash flow territory in the back half of 2019, but 2020 should be the real turning point for the company," he added. "Likewise, the balance sheet remains at about 3x leverage through 2019 before meaningfully improving in 2020."
About 14 of SM's wells in the Eagle Ford are slated to come online in Q2/19 versus two that started production in Q1/10. As such, Freeman noted, Raymond James estimated SM Energy will attain an approximate 13% growth in 2019 over that of last year with a capex of $1.07 billion, weighted to H1/19. Similarly, SM's budget guidance for the year remains at $1–1.07 billion.
As for pricing in Q2/19, SM Energy expects it to be weaker in Q2/19 and Q3/19 for crude oil and natural gas due to constrained pipeline capacity for both causing Permian price differentials to expand, Freeman pointed out. However, "hedges on 60–65% of oil and 70–75% of Permian gas should alleviate some of the regional pricing burden."
Raymond James has a $26 per share target price on SM Energy, whose current share price is around $15.10.
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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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Disclosures from Raymond James, SM Energy Company, May 16, 2019
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst John Freeman, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates, Inc. makes a market in the shares of SM Energy Company.
Raymond James & Associates received non-investment banking securities-related compensation from SM Energy Company within the past 12 months.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available here.
