Saving Grace
4年前
SM Energy: Strong Upside Potential
Summary
By reducing capex, cutting debt and positive cash flow generation, SM is withstanding the downturn.
Q3 earnings to be announced next week.
Due to how depressed shares are at present, we see limited downside but significant upside.
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When either trading or investing in the financial markets, we believe the key is to be able to put oneself in positions where there is limited downside but yet significant upside. This is one of the iron-clad rules of being able to successfully trade the financial markets. The trader/investor who can do this consistently automatically stacks the odds in his favour in a very big way.
One such stock which may be a candidate for what we are looking for (small downside risk but significant upside potential) is SM Energy Company (NYSE:SM) which operates in the energy sector. We actually wrote about SM Energy in December of last year when we actually took a bullish stance on the stock. At the time, we were actually looking for a double bottom reversal pattern to play itself out. Suffice it to say, the reversal pattern never materialised, and shares are now down 80%+ since that article (current price is $1.61).
Shares finally bottomed in March of this year just above the $1 level before more than quadrupling in price to hit $6+ a share in just the space of a few months. Shares, though, couldn't keep the momentum going, and it now looks like we will revisit those March lows shortly unless we can confirm a clear change in trend.
In fact, as we can see from the chart below, price will need to convincingly break above that down-cycle daily trend line before a bullish trend can begin.
Despite not being profitable at present, SM Energy's present valuation remains compelling. Trading with a book multiple of 0.08, a sales multiple of 0.14, and a cash/flow multiple of 0.23, shares have never been this cheap. Despite posting -$0.15 in earnings in the most recent second quarter, the firm still managed to generate $114 million in operating cash flow. This means $777 million of operating cash flow was generated over the past four quarters, which gives rise to the ultra-low cash flow multiple (current market cap is $184 million).
What investors need to take into account here is that, despite the negative EPS number in Q2, SM Energy still managed to generate $108 million of free cash flow over the first 6 months of the year as well as reduce the long-term debt by $219 million. Reported liquidity came in at $865 million. Yes, many will point to how leveraged SM Energy's balance sheet is, but its debt is well covered by its assets on hand. In the Q2 report, $5.267 billion of assets were reported on the balance sheet versus $2.98 billion of combined liabilities (of which $2.456 billion was reported as long-term debt). Suffice it to say, the balance sheet at present has the same amount of equity ($2.28 billion) as the end of fiscal 2014 when shares were trading close to $40 a share.
In late February and March of this year, plenty of insider buying took place at prices well north of the current share price. Plenty of buying went on between the $5 and $7 level from the CEO and CFO in these months which obviously mean that they saw value at these prices.
The reason being is that, for every dollar invested in this stock, the investor receives $12.50 worth of its assets at present. This number is really attractive when compared to the sector in earnest and especially when we see the success of SM's wells in the Midland basis not to mind how costs have been improving in South Texas. We have seen what the company's assets have returned in the past (2014, 2018, etc.) under the right conditions. There is no reason to believe why they can't return solid numbers once more.
In terms of strategy, our objective here would be to keep positions small to control risk as much as possible. Considering the upside in this stock, there is no need to push the boat out with respect to position-sizing. With third quarter earnings numbers expected next week, a positive report could easily send shares above that down-cycle trend line. In any event, our play here would be a small position initially followed by a larger position if indeed we get a post-earnings breakout.
Therefore, to sum up, SM Energy definitely attracts us due to its ultra-low valuation as well as its continued ability to generate positive cash flow from its operations. Let's see what the third quarter brings and see if we can finally break out to the upside.
https://seekingalpha.com/article/4381143-sm-energy-strong-upside-potential
whytestocks
4年前
BREAKING NEWS: $SM Why Energy Stocks Core Laboratories, Occidental Petroleum, and SM Energy Jumped Today
Shares of small U.S. oil and gas company SM Energy (NYSE: SM) rose as much as 11% on Sept. 16. Fellow driller Occidental Petroleum (NYSE: OXY) were up roughly 10% at one point. Drilling services provider Core Laboratories (NYSE: CLB) also joined the energy sector uptick, rising aro...
Read the whole news SM - Why Energy Stocks Core Laboratories, Occidental Petroleum, and SM Energy Jumped Today
Saving Grace
5年前
Surprise Crude Draw Sends Oil Prices Soaring
By Julianne Geiger - Jun 02, 2020, 3:53 PM CDT
The American Petroleum Institute (API) estimated on Tuesday a small crude oil inventory draw of 483,000 barrels for the week ending May 29.
Analysts had predicted an inventory build of 3.038 million barrels.
In the previous week, the API estimated a build in crude oil inventories of 8.731 million barrels. Meanwhile, the EIA’s estimates were for more muted, with the industry body reporting last week that the inventories had climbed by 7.9 million barrels.
WTI was trading up on Tuesday afternoon prior to the API’s data release as OPEC pushed up the timeline for its meeting to discuss the future of the group’s current oil production cut plans which are set to expire at the end of June. Indications are that Saudi Arabia hopes to extend the cuts in some form until the end of the year, while Russia is rumored to prefer an extension of a month or two at most,
Either way, the market likes the idea of more cuts, with the understanding that cutting production through June will be insufficient to draw down the global glut that is weighing on prices and taxing storage capacity,
Oil production in the United States has now fallen from 13.1 million bpd on March 13 to 11.4 million bpd for May 22, according to the Energy Information Administration—a drop of 1.7 million bpd—more than OPEC’s production cut agreement from last year.
At 4:16 pm EDT on Tuesday the WTI benchmark was trading up on the day by $1.42 (+4.01%) at $36.86. The price of a Brent barrel was trading up on Tuesday as well, by $1.31 (+3.42%), at $39.63.
The API reported a build of 1.706 million barrels of gasoline for week ending May 29—compared to last week’s 1.120-barrel build. This week’s draw compares to analyst expectations for a 1.0 million-barrel build for the week.
Distillate inventories were up by 5.917 million barrels for the week, compared to last week’s 6.907-million-barrel build, while Cushing inventories saw a draw of 2.2 million barrels.
At 4:37 pm EDT, WTI was trading at $36.93 while Brent was trading at $39.66.
By Julianne Geiger for Oilprice.com
https://oilprice.com/Latest-Energy-News/World-News/Surprise-Crude-Draw-Sends-Oil-Prices-Soaring.html