We upgrade St. Mary Land & Exploration Company (SM) to Neutral from Underperform.
The recent quarter’s earnings were significantly above our expectations, driven by higher commodity prices and lower costs. St. Mary has changed its strategy of growing through niche acquisitions to develop by focusing on greater acreage in potential resource plays. It has exposure in several emerging plays including the Eagle Ford, Bakken, Haynesville, Marcellus, Granite Wash and Woodford shale.
However, the company 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.
Given the company’s increasing activity in the oilier parts of its assets portfolio, specifically the Permian and Rocky Mountain regions, we believe that SM will be able to increase its oil-weighted activity through 2010.
Separately, shareholders of the company approved the proposal to change its name to SM Energy Company, which is scheduled to come into effect on Jun 1, 2010. The common stock of the company will continue to be listed on the New York Stock Exchange under the symbol “SM”.
We believe that SM’s emerging core portfolio will support several years of visible organic growth. The company’s attractive oil and gas investments, a balanced and diverse portfolio of proved reserves and development drilling opportunities will create value for its shareholders.
Read the full analyst report on “SM”
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