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SM Energy (SM) Down 19.6% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for SM Energy Company (SM - Free Report) . Shares have lost about 19.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

SM Energy Incurs Narrower-than-Expected Loss in Q4

SM Energy Company posted fourth-quarter 2016 adjusted loss of $0.31 per share, narrower than the Zacks Consensus Estimate of $0.39. Moreover, the quarterly loss was significantly narrower than the $0.90 per share incurred in the year-ago quarter. This narrower-than-expected loss is mainly attributable to the reduced operating expenses incurred in the fourth quarter.

Total revenue was $379.9 million in the quarter, up 25% from $303.7 million in the prior-year quarter and also up from the Zacks Consensus Estimate of $370 million.

Operational Performance

The company’s fourth-quarter production came in at 145.6 thousand barrels of oil equivalent per day (MBoe/d), down 10% from the year-ago level of 162.1 MMBoe/d. The decline was mainly attributed to reduced activity in the Eagle Ford shale and asset sales.  

SM Energy produced 382.7 million cubic feet per day (MMcf/d) of natural gas in the quarter, down 12% year over year. Oil production decreased 8% year over year to 43.9 thousand barrels per day (MBbls/d). Natural gas liquids contributed 37.9 MBbls/d to the total volume, down 9% from the fourth-quarter 2015.

Due to hedging, the average equivalent price per barrel of oil equivalent (Boe) was $27.59 compared with $28.50 in the year-ago quarter. Including hedging activities, the average realized price of natural gas increased 8% year over year to $3.21 per thousand cubic feet (Mcf) and average realized prices of oil fell 12% to $48.96 per barrel, whereas average realized prices of natural gas liquid was up by 8% and amounted to $16.92 per barrel.

On the cost front, unit lease operating expenses (LOE) decreased 5% year over year to $3.67 per Boe. Transportation expenses, however, increased to $6.39 per Boe from $6.10 per Boe in the year-ago period. General and administrative expenses rose by 10% to $2.49 per Boe from the prior-year level of $2.26, while depletion, depreciation and amortization (DD&A) expenses were down 20% to $12.81 per Boe from the year-ago level of $16.10.

Liquidity

Net cash from operating activities decreased to $137.8 million during the quarter from $193.5 million in the year-ago quarter. As of Dec 31, 2016, SM Energy had a cash balance of $9.37 million and long-term debt of $2,897.6 million, with a debt-to-capitalization ratio of 53.7% compared with the 61 % figure recorded in the preceding quarter.

Operating expenses

Operating expenses amounted to $664.3 million in the fourth quarter as against $809.3 million in the year-ago quarter reflecting a decrease of around 18%. There was a significant drop in the exploration expenses which stood at $23.7 million in the reported quarter as against $37.9 million in the year-ago quarter.

Year-end Reserves

Year end proved reserves of 2016 amounted to 396 MMBoe as against 471 MMBoe in 2015 reflecting a decline rate of 16%.

Guidance

SM Energy estimates production for 2017 in the range of 40–43 MMBoe. Production for the first-quarter 2017 is projected between 11–11.4 MMBoe. The estimated LOE per Boe is $4. The company has its capital expenditure budget for 2017 at $875 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter compared to one upward.

SM Energy Company Price and Consensus

 

SM Energy Company Price and Consensus | SM Energy Company Quote

VGM Scores

At this time, SM Energy's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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