Why SM Energy (SM) Was Downgraded

Story updated at 10 a.m. to reflect market activity.

NEW YORK (TheStreet) -- SM Energy (SM) was downgraded to "hold" from "buy"" by KeyBlanc Wednesday.

SM Energy fell 18.6% to $72.94 in morning trading.

The firm removed its price target for the oil and gas company, which was previously set at $108. The downgrade is largely due to the company's lower crude production.

"Year-end 2013 proved reserve bookings were strong, with total reserves up 46% and PV-10 totaling $5.5 billion, which increased our 1P estimate by $15/share to $51/share," analyst Jack N. Aydin said.

"However, the Company's Eagle Ford EURs were largely revised lower despite incorporating longer lateral lengths, which increased the average well cost, while the EUR oil mix generally declined across its acreage."

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

"We rate SM ENERGY CO (SM) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations, solid stock price performance and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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

  • SM's very impressive revenue growth greatly exceeded the industry average of 2.4%. Since the same quarter one year prior, revenues leaped by 59.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 284.4% when compared to the same quarter one year prior, rising from -$38.34 million to $70.69 million.
  • Net operating cash flow has significantly increased by 66.26% to $404.51 million when compared to the same quarter last year. In addition, SM ENERGY CO has also vastly surpassed the industry average cash flow growth rate of -50.31%.
  • Powered by its strong earnings growth of 279.31% and other important driving factors, this stock has surged by 44.58% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • SM ENERGY CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SM ENERGY CO swung to a loss, reporting -$0.84 versus $3.09 in the prior year. This year, the market expects an improvement in earnings ($4.57 versus -$0.84).

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