SM Energy's Near-Term Focus Centers On Debt Reduction Over Stock Buybacks: Analyst

Core Viewpoint - J.P. Morgan analyst Zach Parham maintains a Neutral rating on SM Energy Co with a price target of $41.00, highlighting the company's ongoing integration of Uinta assets and minimal impact from previous operational disruptions [1]. Production and Financial Estimates - For the first quarter, oil volumes are expected to reach 103.0 MBo/d, slightly above SM's guidance and in line with consensus expectations of 103.1 MBo/d [2]. - SM plans to deliver 45 net Turn-In-Lines (TILs) in the first quarter, which is 30$4.37, slightly above the consensus estimate of $4.28, while EBITDA is projected at$570 million, exceeding the consensus of $559 million [3][4]. - Capital expenditures for the quarter are expected to be$430 million, within the company's guidance, and free cash flow (FCF) is estimated at $72 million [4]. Annual Projections - For the full year, SM projects oil production of 107.7 MBo/d, supported by$1.31 billion in capital spending, resulting in $740 million of free cash flow and a 22$2.0 billion cash acquisition of XCL Resources in October 2024, expanding its operations in the Uinta Basin [5]. Strategic Focus - Due to the cash-financed acquisition, SM is prioritizing debt reduction over share buybacks, aiming to reduce leverage below 1x by mid-2025, which currently results in a cash return yield lagging behind the peer median [6].