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Why Is SM Energy (SM) Up 7.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for SM Energy (SM - Free Report) . Shares have added about 7.3% in that time frame, outperforming the S&P 500.

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

Second-Quarter 2018 Results

SM Energy Company’s second-quarter 2018 adjusted earnings of 15 cents per share beat the Zacks Consensus Estimate of 6 cents. Meanwhile, the figure declined from the year-ago quarter’s earnings of 32 cents.
 
Total revenues surged 55.8% to $444 million from $285 million in the prior-year quarter and beat the Zacks Consensus Estimate of $371 million.

Higher oil production and liquids price realizations aided growth, offset by increased operating expenses.

Operational Performance

The company’s second-quarter production was 115.2 thousand barrels of oil equivalent per day (MBoe/d), down 8% from the year-ago quarter’s level of 124.6 MMBoe/d. The decline was mainly caused by the divestment of producing properties.

SM Energy produced 278.3 million cubic feet per day (MMcf/d) of natural gas in the quarter, down 26% year over year. Oil production increased 50% year over year to 47.9 thousand barrels per day (MBbls/d). Natural gas liquids contributed 20.9 MBbls/d to the total volume, down 31% from second-quarter 2017 level.   

Due to hedging, the average equivalent price per barrel of oil equivalent (Boe) was $34.91 compared with $26.57 in the year-ago quarter. Including hedging activities, average realized price of natural gas fell 9% year over year to $3.29 per thousand cubic feet (Mcf). Average realized prices of oil rose 28% to $55.42 per barrel and average realized prices of natural gas liquid grew 15% to $21.51 per barrel.

On the cost front, unit lease operating expenses (LOE) increased 13% year over year to $4.66 per Boe. Transportation expenses fell to $4.47 per Boe from $5.71 per Boe in the year-ago quarter. General and administrative expenses rose 11% to $2.76 per Boe from the prior-year quarter’s level of $2.49. Depletion, depreciation and amortization (DD&A) expenses were up 7% to $14.48 per Boe from the year-ago quarter’s level of $13.52.    

Liquidity

Net cash from operating activities increased to $171.4 million during the quarter from $107.1 million in the year-ago quarter. As of Jun 30, SM Energy had a cash balance of $615.9 million and long-term debt of $2,660.703 million. The company had a debt-to-capitalization ratio of 49.3%.

Operating Expenses

Operating expenses amounted to $387.8 million in the second quarter, up from $268 million in the year-ago quarter by more than 44.7%. Exploration expenses increased to $14.1 million from $13 million in the year-ago quarter.

Guidance

SM Energy raised 2018 production estimate to 43.5-45 MMBoe from the previous range of 40.9-44.9 MMBoe. Production for the third quarter is projected between 11.2-11.7 MMBoe. The company also increased 2018 capital expenditure budget by $40 million to $1.31 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.94% due to these changes.

VGM Scores

At this time, SM Energy has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SM Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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