Raymond James upgraded SM Energy (NYSE:SM) to Outperform from Underperform and set a price target of $55.00.
The firm said SM Energy has been one of the biggest beneficiaries in its coverage universe of the oil price increase following the Iran war. The analyst noted that despite the stock's recent run, a bullish oil outlook relative to the current strip provides upside potential. The stock currently trades at $34.32, near its 52-week high of $34.44, with shares up 90% over the past six months and 85% year-to-date.
SM Energy has reduced absolute debt by approximately $700 million following its merger close. The company expects leverage to fall below 1x by the fourth quarter of 2026, with the possibility of reaching that level earlier under the firm's oil outlook.
The company plans to begin share buybacks in the second quarter of 2026 and continue building free cash flow in the second half of the year. Raymond James said further shareholder upside could be unlocked if the company's balance sheet goals of lower leverage and higher free cash flow remain on track, assuming production performance continues through 2026 and 2027.
SM Energy trades at a 2027 estimated free cash flow to enterprise value ratio of approximately 14% and an enterprise value to EBITDA multiple of approximately 3x. The peer group trades at approximately 9% and 3.5x, respectively. Bond.az analysis indicates the stock remains undervalued.
