SM Energy "Beyond The Honeymoon; Initiate At Buy As Merger Benefits Roll..."

Research evidence excerpt

SM Energy "Beyond The Honeymoon; Initiate At Buy As Merger Benefits Roll..."

's Q1 - 1.56 - 1.55

leverage falling from 2.9x at 1Q26 to 1.1x by YE27, derisking its B/S to be more Q2E - 1.70 - 1.68

competitive with peers. SM's credit rating has had two upgrades and one positive Q3E - 1.59 - 1.70

outlook post-merger, a testament to an improving financial profile. Q4E - 1.54 - 1.64

12/26E - 6.40 - 6.59

Ramping Returns. SM lifted its dividend 10% with the merger, and will begin 12/27E - 6.63 - 7.17

allocating 20% of FCF to buybacks in 2Q26. Once SM's leverage reaches the low 12/28E - 7.23 - 7.53

1x level, it will look to raise this buyback allocation, which we see creating a 2027

Peyton Dorne

catalyst as returns inflect higher. We assume SM allocates ~35% to the buyback in Analyst

2027, with its 12.4% 2027E RoC Yield above the 8.3% SMID peer average. peyton.dorne@ubs.com

+1-212-713 4359

Portfolio Improvement. Through CIVI, SM expanded its Permian footprint,

entering the Delaware, and providing it a significant opportunity to improve Josh Silverstein

execution. Broader adoption of 4-mile laterals and simulfracs across the portfolio Analyst

will be one lever to lower costs, and we project SM's capital efficiency showing a josh.silverstein@ubs.com

+1-212-713 3513

positive rate of change into 2027 as its operational and synergy gains are achieved.

William Barber

Valuation & Key Risks Associate Analyst

Our $36 PT reflects a ~3.0x 2027E EV/EBITDA multiple on our $71 WTI/$3.75 william.barber@ubs.com

+1-212-713 5553HHUB 2027 deck, a discount to the ~4.3x Oil E&P group's PT average, reflecting SM’s

higher leverage and asset mix. The key risk to our Buy rating is lower oil prices slowing

deleveraging, delaying SM's lifting of its its buyback beyond its 20% allocation of FCF.