We recently initiated coverage on St. Mary Land & Exploration Co. (SM) with an Underperform recommendation and a target price of $30.
St. Mary is an independent oil and gas company engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America.
The company witnessed a 13% decrease in production volumes in the fourth quarter. However, it managed to report better-than-expected earnings on the back of improved oil prices and cost reduction initiatives.
St. Mary still faces the challenge of reversing its declining production trend despite the fact that it has turned the corner in several of its emerging unconventional growth opportunities.
The company has recently sold its Rocky Mountain properties. This move is intended to fund its initiatives to build a significant position in emerging shale plays in order to reposition it as more of a resource play focused company.
While we view the company’s Rocky Mountain property divestiture as a welcome development, it still needs to prove and de-risk the acreage it holds in its unconventional plays in order to successfully complete the transition to a resource-based company.
With the outlook for natural gas remaining bleak and the company’s reserves and production being natural gas weighted, we see little reason for investors to own the stock as the ongoing long-term fundamental changes indicate struggle ahead for the industry.
Read the full analyst report on “SM”
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