SM

We rate SM Energy Co (SM) as a Reduce with a composite score of 44.1/100 at a current price of $22.45. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in value (60th percentile) and quality (51th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (15th percentile) and investment (22th percentile) tempers our overall conviction. We assign a Narrow Moat rating (43/100), High uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SM Energy Co holds a top-quartile position (#0 of 50) within the Mining sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 44.1/100 places it at rank #2956 in our full 7,333-stock universe. At $2.8B in market capitalization, SM Energy Co is a mid-cap player in the Mining space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 28%, though momentum at the 15th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 72% (+28.8pp vs sector) narrow to operating margins of 38% (+25.7pp vs sector) and net margins of 25.9%, yielding a gross-to-net conversion rate of 36%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $22.45, SM Energy Co is trading near fair value based on current fundamentals. Our value factor score of 60/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 7.2x (a 47% discount to the sector median of 13.7x), EV/EBITDA of 4.9x (near the sector median), P/B of 1.2x, P/S of 1.8x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a High uncertainty rating to SM Energy Co. Key risk factors include elevated market sensitivity (beta of 1.68), below-average price stability (37th percentile). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.68); below-average price stability (37th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 37th percentile and quality factor at the 51th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 72% provide a buffer against cost pressures; a 3.23% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate SM Energy Co's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 16.5%, and the balance sheet is managed within acceptable parameters (D/E: 93%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; SM Energy Co falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 3.23% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, SM Energy Co receives a Reduce rating with a composite score of 44.1/100 (rank #2956 of 7,333). Our quantitative framework assigns a Narrow Moat (43/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 37/100.

Our analysis does not support a constructive view on SM Energy Co at this time. The combination of the current quantitative profile, high uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.