Why Is SM Energy (SM) Down 84.3% Since Last Earnings Report?

A month has gone by since the last earnings report for SM Energy (SM). Shares have lost about 84.3% 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’s Q4 Earnings Beat Estimates on Higher Production

SM Energy reported fourth-quarter 2019 adjusted loss of 4 cents per share, narrower than the Zacks Consensus Estimate of a loss of 9 cents. The reported figure also improved from a loss of 18 cents a year ago.

Total revenues, which increased to $451.7 million from $394.2 million in the prior-year quarter, beat the Zacks Consensus Estimate of $410 million.

The strong quarterly results can be attributed to higher production levels, supported by Midland Basin activities and increased realized crude prices.

Proved Reserves

As of Dec 31, 2019, it had proved reserves of 462 MMBOE, of which 40% was crude oil, 44% natural gas and 16% NGLs. It added 101.5 MMBOE reserves in 2019. Notably, 53% of the reserves are proved developed. The rise in proved oil reserves (from 35% to 40%) was supported by Midland Basin strength.

Operational Performance:

Total Production Increases

The company’s fourth-quarter production was 138.8 thousand barrels of oil equivalent per day (MBoe/d), up 13% from the year-ago level of 122.8 MBoe/d. The production growth was supported by operations in the Midland Basin.

Oil production increased 22% year over year to 67.3 thousand barrels per day (MBbls/d). SM Energy produced 305.7 million cubic feet per day of natural gas in the quarter, up 10% year over year. Natural gas liquids contributed 20.5 MBbls/d to total production volume, down 4% from the fourth-quarter 2018 level.

Mixed Realized Prices

Excluding the effects of derivative settlements, the average realized price per Boe was $35.17 compared with $34.74 in the year-ago quarter. Average realized price of natural gas fell 35% year over year to $2.42 per thousand cubic feet. Notably, average realized prices of oil rose 14% to $56.09 per barrel and that of natural gas liquids declined 26% from the prior-year quarter to $17.84.

Cost & Expenses

On the cost front, unit lease operating expenses decreased 6% year over year to $4.67 per Boe. In addition, transportation expenses fell to $3.46 per Boe from $4.19 in the year-ago quarter. However, general and administrative expenses rose 8% to $2.92 per Boe from the prior-year level of $2.69.

Total exploration expenses rose to $17.6 million from $14.3 million in the year-ago quarter. Hydrocarbon production expenses in the quarter were recorded at $127.3 million compared with the year-ago level of $121.5 million. Total operating expenses in the quarter increased to $540 million from the year-ago period’s $35.6 million, primarily due to absence of net derivative gains.

Balance Sheet

As of Dec 31, SM Energy had a cash balance of $10,000 and liquidity of $1.1 billion. Its net long-term debt was $2,732.8 million. The company had a debt-to-capitalization ratio of 49.9%.

Guidance

SM Energy expects full-year 2020 production in the range of 123-131 MBoe/d. Of the total production, 50% is anticipated to be oil. For 2020, the company expects capital spending to decline 20% from the 2019 level to the range of $825-$850 million.

Production for first-quarter 2020 is projected within 131-136 MBoe/d. The firm expects capital spending for the quarter within $180-200 million.

It has announced its full-year lease operating expense guidance in the range of $5.25-$5.50 per Boe. Transportation costs are expected within $3.20-$3.45 per Boe.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -263.33% due to these changes.

VGM Scores

At this time, SM Energy has a strong 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 A on the value side, putting it in the top quintile 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.

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.