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SM Energy (SM) Down 17.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for SM Energy (SM - Free Report) . Shares have lost about 17.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is SM Energy 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 Posts Loss in Q3 on Higher Operating Expenses

SM Energy reported a loss of a cent in third-quarter 2018, missing the Zacks Consensus Estimate of earnings of 15 cents. Meanwhile, the company incurred a loss of 25 cents in the year-ago quarter.

Total revenues surged 55.6% to $459 million from $295 million in the prior-year quarter and beat the Zacks Consensus Estimate of $428 million.

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

Operational Performance

The company’s third-quarter production was 130.2 thousand barrels of oil equivalent per day (MBoe/d), up 12% from the year-ago quarter’s level of 116 MMBoe/d. The upside can be mainly attributed to strong well performance and higher processed NGL volumes.

SM Energy produced 295.3 million cubic feet per day (MMcf/d) of natural gas in the quarter, down 7% year over year. Oil production increased 48% year over year to 54.9 thousand barrels per day (MBbls/d). Natural gas liquids contributed 26.2 MBbls/d to the total volume unchanged from third-quarter 2017 level.  

Due to hedging, the average equivalent price per barrel of oil equivalent (Boe) was $34.86 compared with $28.82 in the year-ago quarter. Including hedging activities, average realized price of natural gas fell 7% year over year to $3.53 per thousand cubic feet (Mcf). Average realized prices of oil rose 21% to $53.64 per barrel and average realized prices of natural gas liquid grew 12% to $21.16 per barrel.

On the cost front, unit lease operating expenses (LOE) declined 8% year over year to $4.41 per Boe. Transportation expenses fell to $4.20 per Boe from $5.24 per Boe in the year-ago quarter. General and administrative expenses declined 5% to $2.46 per Boe from the prior-year quarter’s level of $2.58. Depletion, depreciation and amortization (DD&A) expenses were up 33% to $16.78 per Boe from the year-ago quarter’s level of $12.61.   

Liquidity

Net cash from operating activities increased to $229.7 million during the quarter from $128.5 million in the year-ago quarter. As of Sep 30, SM Energy had a cash balance of $176.8 million and long-term debt of $2,592.952 million. The company had a debt-to-capitalization ratio of 49.9%.

Operating Expenses

Operating expenses amounted to $568 million in the third quarter, up from $380.5 million in the year-ago quarter by more than 49.3%. Exploration expenses fell to $13.1 million from $14.1 million in the year-ago quarter.

Guidance

SM Energy narrowed its 2018 production range to 43.9-44.3 MMBoe from the previous range of 43.5-45 MMBoe. Production for the fourth quarter is projected between 11.3-11.7 MMBoe. The company reiterated its 2018 capital expenditure budget of $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 -59.37% due to these changes.

VGM Scores

Currently, SM Energy has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

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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