As reflected at the current price of $43, what future SM Energy operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, SM Energy shares will need to reach $72. Upper quartile performance will require a $85 SM Energy stock price by 2029.
Executive Summary
- Price Target Research identifies SM Energy as having: high profitability, above average financial strength, stability, and very low expected growth. A big positive influence on SM Energy’s valuation is its superior Growth.
- Average valuation, above market shareholder returns. Current valuation levels are average relative to the SM Energy Peer Group. Recent market returns have outperformed the SM Energy Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, SM Energy shares should reach a level of $48 by 2029 — an 3.4% per year total shareholder return. A 2029 stock price of $72 would reflect median performance and a price of $85 would be required to reach upper quartile performance.
- Growth has been SM Energy’s biggest valuation strength. Historical growth has been very high relative to the SM Energy Peer Group and forecasted growth is relatively very low. EPS Growth has been superior. This factor has buoyed market perceptions of SM Energy. SM Energy’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. SM Energy’s consensus growth expectations are in line with past growth.
- Pretax Margin is group leading. This factor has strengthened market perceptions of SM Energy. The company has high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- SM Energy’s risk profile is favorable. Overall variability has been very high with very high revenue variability, very low E.P.S. variability, and very high stock price volatility. Financial Strength is only average and earnings’ expectations are below average. The debt/capital ratio has declined.
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