Investors should take hold of SM Energy ahead of its earnings report, according to TD Cowen. Analyst Gabe Daoud upgraded his rating on the stock to buy from hold. That said, lower commodity prices led him to cut his price target by $4 to $60. That still implies around 34.5% upside, as of Monday’s close. “While we’re cautious [on] crude we believe SM stands out as retaining multiple resource catalysts – at a time when that’s largely nonexistent in [earnings and profits] – that can shape a more capital efficient ’25 [versus] what’s appreciated,” he said in a note to clients on Tuesday. “We see dividend coverage down to ~$49/bbl which can prove defensive in a volatile tape.” Heading into its third-quarter results at the end of the month, Daoud expects the company to beat Wall Street’s expectations. He also sees “attractive” capital efficiency for 2025. As catalysts for growth, the analyst cited SM’s acquisitions in the Klondike area in Texas – where the company expects to complete eight wells this year – and the Uinta Basin in Utah. “SM remains a technical leader in the Midland Basin with ’23 oil productivity ranking first among operators and ’24 not far behind,” Daoud said. “Overall ’24 well productivity continues to outperform ’23 across SM’s core assets in Midland & South Texas, both of which sit at the low-end of the cost curve supporting durable [free cash flow] in a volatile pricing environment.” On top of that, he noted that return-of-capital initiatives, such as dividend increases or share buybacks specifically, could drive more upside. SM YTD mountain SM, year-to-date While the stock was down around 3% premarket on Tuesday, it has risen more than 15% in 2024 and about 14% in the past one month.
This under-the-radar oil producer is a buy and can rally more than 34%, TD Cowen says
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