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Why Is SM Energy (SM) Down 17.5% Since Last Earnings Report?

A month has gone by since the last earnings report for SM Energy (SM). Shares have lost about 17.5% 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 drivers.

SM Energy's Q1 Loss Wider Than Expected, Sales Miss Estimates

SM Energy Company reported first-quarter 2019 loss of 34 cents, wider than the Zacks Consensus Estimate of a loss of 28 cents. The reported figure also fared unfavorably with earnings of 7 cents a year ago.

Total revenues, which declined to $340.9 million from $769.6 million in the prior-year quarter, marginally missed the Zacks Consensus Estimate of $341 million.

The weak first-quarter 2019 results were primarily attributed to lower realized commodity prices and higher operating expenses.

Operational Performance:

Equivalent Production Rises

The company’s first-quarter production was 118.7 thousand barrels of oil equivalent per day (MBoe/d), up 5% from the year-ago level of 112.7 MBoe/d. The upside can be mainly attributed to higher oil and natural gas liquids production.

SM Energy produced 265.5 million cubic feet per day of natural gas in the quarter, down 5% year over year. However, oil production increased 13% year over year to 53.7 thousand barrels per day (MBbls/d). Natural gas liquids contributed 20.8 MBbls/d to total production volume, up 12% from the first-quarter 2018 level.  

Realized Prices Decline

Due to hedging, the average equivalent price per barrel of oil equivalent (Boe) was $31.39 (including the effects of derivative settlements) compared with $35.34 in the year-ago quarter. Including hedging activities, average realized price of natural gas fell 25% year over year to $2.55 per thousand cubic feet. Average realized prices of oil fell 13% to $49.19 per barrel, while that of natural gas liquids grew 1% from the prior-year quarter to $19.67.

Cost & Expenses

On the cost front, unit lease operating expenses increased 5% year over year to $5.20 per Boe. Transportation expenses fell to $4.08 per Boe from $4.63 in the year-ago quarter. General and administrative expenses increased 10% to $3 per Boe from the prior-year level of $2.73. Additionally, depletion, depreciation and amortization expenses were up 29% to $16.63 per Boe from the year-ago level of $12.87.   

Total exploration expenses fell to $11.3 million from $13.7 million in the year-ago quarter. Hydrocarbon production expenses in the quarter were recorded at $121.3 million compared with the year-ago level of $120.9 million. Total operating expenses in the quarter surged to $526.2 million from the year-ago period’s $310.5 million, primarily due to a northbound jump in net derivative loss.

Balance Sheet

As of Mar 31, SM Energy had a cash balance of $14 million and long-term debt of $2,646.3 million. The company had a debt-to-capitalization ratio of 49.1%.

Guidance

SM Energy reiterated its full-year 2019 guidance. Production for second-quarter 2019 is projected within 11.5-11.9 million barrels of oil equivalent or 126-131 MBoe/d, of which 43-44% is expected to be oil. Second-quarter capital expenditure is expected in the range of $300-310 million.

In the second half of the year, the company expects to achieve production growth, while keeping capital expenditure within discretionary cash flow.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 98.11% due to these changes.

VGM Scores

Currently, SM Energy has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 upward for the stock, and the magnitude of these revisions looks promising. 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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