According to a filing with the SEC, billionaire Steve Cohen’s SAC Capital Advisors owns 3.4 million shares of SM Energy Co. (NYSE:SM), a $3.8 billion market cap oil and gas exploration and production company. SM is notable for its positions in many onshore U.S. shale plays, including the Eagle Ford in Texas and the Bakken in North Dakota. We track quarterly 13F filings from hedge funds in our database; while we primarily use this information to develop investment strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year), we can also use it to see that SAC had only owned 1.3 million shares at the end of December. See more of Cohen’s stock picks from the 13F. So the fund has bought most of these shares within the last two and a half months.
We can also see that SAC is likely the largest shareholder in SM Energy Co. out of the filers we track. The largest position out of the hedge funds and other notable investors in our database at the end of the fourth quarter of 2012 belonged to Dmitry Balyasny’s Balyasny Asset Management, which owned 2.1 million shares (find Balyasny’s favorite stocks). Billionaire Ken Griffin’s Citadel Investment Group increased its holdings of SM by 11% to a total of 1.6 million shares (check out more stocks Griffin was buying).
Since over half of the energy equivalent of SM’s production is natural gas, which experienced a difficult market environment in 2012, it’s not surprising that the company was struggling in terms of its financial performance. Last year revenue was actually down compared to 2011, even though SM Energy Co. recorded an increase in production expenses. As a result operating income- after adding back some property impairments- was about $200 million, down by about two-thirds from the previous year on the same basis. Interest expenses have also increased as SM has taken on more debt.
We believe that SM is dependent on an improved natural gas market in order to justify its valuation. We do think that natural gas has prospects for increased demand, including export potential, though we aren’t sure how high those trends will carry prices. Wall Street analysts expect enough earnings for 2014 that the forward P/E is 18.
How does this compare to SM’s peers?