SM - SM Energy cut at J.P. Morgan on outlook for lower capital efficiency

SM Energy ( NYSE: SM ) -6.2% in Wednesday's trading after J.P. Morgan downgraded shares to Neutral from Overweight with a $46 price target, cut from $55, citing higher oilfield services costs and initial signs of a deterioration in well production that likely will lower the company's capital efficiency.

JPM analyst Zach Parham estimates SM's ( SM ) 2023 oil production will come in at 64.4K bbl/day, 5% below Wall Street consensus, and recent messaging indicates the company is experiencing 20% Y/Y cost inflation, which pushes his expected 2023 capex budget to $1.11B, 8% above the Street.

While SM Energy ( SM ) began returning cash through share buybacks and an increased common dividend in October, Parham thinks "a less capital efficient program in 2023 could leave cash return short of investor expectations."

SM Energy ( SM ) could generate close to $800M in positive cash flow in 2023 at current strip while holding production roughly flat, Elephant Analytics writes in an analysis recently published on Seeking Alpha .

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