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SM Energy (SM) Jumps 61.4% in 6 Months: More Growth Ahead?

SM Energy (SM) intends to maximize free cash flow by 2025, which can fund its debt reduction program.

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This story originally appeared on Zacks

SM Energy Company’s SM shares have jumped 61.4% in the past six months. The company is riding on increasing oil and gas prices. The commodity prices witnessed a substantial rise during this time period. 

- Zacks

Driving Factors

The WTI crude price index is currently hovering above the $75 per barrel range, marking a massive improvement from last year’s historic lows. Rising demand, thanks to multiple vaccine rollouts around the world, is supporting the price. Also, OPEC+ output cut compliance is playing a major role in this. Natural gas prices are currently trading at a multi-year high, well beyond the $5 threshold. Rising consumption in Asia and Europe, and low supply of the commodity are keeping the price high. Denver, CO-based SM Energy — with a market cap of $3.4 billion — is enjoying the benefits of high commodity prices.

With an improving economic outlook around the world, energy demand is expected to witness a sustainable rise in the coming days. This creates a perfect scenario for SM Energy’s upstream business. Several other companies like ConocoPhillips COP, Continental Resources, Inc. CLR and Range Resources Corporation RRC are also expected to benefit from the favorable upstream market.

What’s Ahead?

Given SM Energy’s increasing focus on crude, specifically in the Permian Basin and Eagle Ford areas, it will be able to boost oil-weighted activity in the coming days. Its total production for 2021 is expected in the range of 130.1-135.6 thousand barrels of oil equivalent per day (MBoe/d), signaling a rise from the 2020 level of 126.9 MBoe/d. Of the total output, 52-53% will likely be oil. Increased production, coupled with high commodity prices, will help the Zacks Rank #3 (Hold) company to continue boosting profits. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimates

The Zacks Consensus Estimate for SM Energy’s 2021 bottom line is pegged at 20 cents per share, signaling a massive improvement from the year-ago loss of 23 cents. Also, the consensus estimate for 2021 revenues stands at $1.7 billion, indicating a rise of 47.9% year over year. Investors should know that the company beat earnings estimates thrice in the last four quarters and missed on the other occasion, with an average surprise of 47.5%.

SM Energy Company Price and EPS Surprise

SM Energy Company Price and EPS Surprise

SM Energy Company price-eps-surprise | SM Energy Company Quote

Sensible Management

The company is trying to use the favorable market scenario to improve financial situation. It intends to maximize free cash flow by 2025, which can fund the debt reduction program. Earlier, the company decreased the full-year 2021 capital spending plan by 27% from the February guidance to $650-675 million. Next year, capital expenditure is likely to further decline and remain stable till 2025. We believe that its systematic and strategic plan of action will drive long-term growth.



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ConocoPhillips (COP): Free Stock Analysis Report

 

Range Resources Corporation (RRC): Free Stock Analysis Report

 

SM Energy Company (SM): Free Stock Analysis Report

 

Continental Resources, Inc. (CLR): Free Stock Analysis Report

 

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