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On Wednesday, Raymond James analyst John Freeman updated the firm’s stance on SM Energy (NYSE: NYSE:SM), raising the price target to $34.00 from the previous $30.00 while maintaining an Outperform rating. Trading at $23.83, the stock appears undervalued according to InvestingPro analysis, despite falling over 46% in the past six months. The adjustment follows SM Energy’s first-quarter results for 2025 and revisions based on the current commodity price environment.
Freeman noted that SM Energy has reiterated its 2025 outlook with one exception: lease operating expenses (LOE) have been increased by 9% to $5.90 per barrel of oil equivalent (boe) due to elevated workover activities, rising fuel gas costs, and increased water disposal costs resulting from nearby drilling activities. The company maintains strong profitability with an impressive 80.2% gross margin over the last twelve months, though InvestingPro data indicates it operates with a significant debt burden of $2.77 billion.
For the second quarter, Raymond James’ production forecast for SM Energy stands at 200 thousand barrels of oil equivalent per day (MBoe/d), with approximately 55% being oil, and capital expenditure (capex) at $380 million, aligning with the company’s guidance. The analyst’s projections for the full year 2025 remain unchanged, with an estimated production of approximately 208 MBoe/d, of which around 52% is oil, and capex close to $1.3 billion.
The firm’s assessment also highlighted SM Energy’s free cash flow (FCF) yield, which is estimated at approximately 9% of enterprise value (EV), and an EV/EBITDA multiple of 2.7x. The increase in the target price to $34 is attributed to a higher commodity price strip compared to the previous evaluation. With a P/E ratio of just 3.3x and revenue growth of 24.9% over the last twelve months, InvestingPro subscribers can access 13 additional key insights and a comprehensive Pro Research Report for deeper analysis of SM Energy’s valuation metrics and growth potential.
In his remarks, Freeman underscored the company’s financial metrics, stating, "SM 2025 FCF yield (FCF/EV) is ~9% with an EV/EBITDA multiple of 2.7x. As such, we reiterate our Outperform rating and our target price is increased to $34 due to higher commodity strip since our previous publication." This comment reflects the basis for Raymond James’ continued positive outlook on SM Energy shares.
In other recent news, SM Energy reported its financial results for the first quarter of 2025, showcasing a strong performance with earnings per share (EPS) of $1.76, surpassing the forecasted $1.54 by 14.3%. The company also exceeded revenue expectations, reporting $844.54 million. Despite these positive results, SM Energy’s stock experienced a decline of 4.92% in after-hours trading. Looking forward, the company plans to increase its oil production by 30% this year and maintain a capital expenditure of $1.3 billion. Debt reduction remains a priority for SM Energy, with a target of achieving 1x leverage by the end of the year. Meanwhile, the company is generating significant free cash flow, even with oil prices at $55. Analysts from KeyBanc Capital Markets Inc. and ROTH Capital discussed various operational aspects, including production strategies and capital allocation, during the earnings call. SM Energy also highlighted its successful integration of Uinta Basin assets, contributing to its robust operational efficiency.
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