SM Energy (SM) Stock Downgraded at BMO Capital Markets

SM Energy (SM) stock was downgraded to 'market perform' from 'outperform' at BMO Capital Markets on Wednesday.
By Amanda Albright ,

NEW YORK (TheStreet) -- SM Energy  (SM) - Get Report stock was downgraded to "market perform" from "outperform" at BMOCapitalMarkets on Wednesday.

The Denver-based independent energy company will face challenges affecting the entire E&P sector, including persistent commodity price weakness, hedge rollovers, and modestly high leverage, BMO said.

"While we never viewed SM's acreage as top tier, we viewed returns as competitive at a reasonable commodity price," BMO said. "That said, against a lower for longer backdrop, we view increased density lower Eagle Ford and upper Eagle Ford development as less of a catalyst to re-rate shares above our target, which translates to a negative risk-reward scenario in terms of delineation success."

The firm lowered its price target on SM Energy stock to $40 from $45.

SM Energy stock closed at $32.82 on Tuesday.

Separately, TheStreet Ratings team rates SM ENERGY CO as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate SM ENERGY CO (SM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SM, with its decline in revenue, slightly underperformed the industry average of 36.8%. Since the same quarter one year prior, revenues fell by 40.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • SM ENERGY CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, SM ENERGY CO increased its bottom line by earning $9.80 versus $2.52 in the prior year. For the next year, the market is expecting a contraction of 100.1% in earnings (-$0.01 versus $9.80).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 98.5% when compared to the same quarter one year ago, falling from $208.94 million to $3.11 million.
  • The debt-to-equity ratio of 1.16 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.35, which clearly demonstrates the inability to cover short-term cash needs.
  • You can view the full analysis from the report here: SM

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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