SM - Embedded Expectations Analysis - 2018 09 28
SM Energy Company (SM:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Assets, with a 1.1x Uniform P/B. At these levels, the market has somewhat optimistic expectations for the firm, but management has concerns about their hedges, acreage value, and cash flow and marginsSpecifically, management may lack confidence in their decision to continue developing acreage in the Eagle Ford, and may be exaggerating expectations for wider-spaced wells. Additionally, they may lack confidence in their ability to sustain significant cash flow growth and high operating margins going forward, and may be exaggerating their commitment to their previous activity outline and CapEx spend levels. Moreover, they may be exaggerating the positive impact that finalizing their divestitures will have on their production, and may have concerns about the effectiveness of their Midland to NYMEX WTI hedges. Finally, they may be exaggerating their satisfaction with the results of their bounded wells so far, and may lack confidence in their ability to get out of some of their less valuable, scattered acreage
SM Energy is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and natural gas liquids in the state of Texas. The company's operations are concentrated in the Midland Basin and South Texas.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
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- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
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