Billionaire Steve Cohen’s SAC Owns 5.2% of SM Energy

SM is best compared to other energy companies which have an emphasis on shale. The leading example of a natural gas-focused shale producer- in both good and bad respects- is Chesapeake Energy Corporation (NYSE:CHK). Chesapeake is also unprofitable on a trailing basis after overextending itself and then getting hit hard by the fall in natural gas prices. While the sell-side is more optimistic about this company- it trades at only 12 times forward earnings estimates- 15% of the outstanding shares are held short. Other peers include Apache Corporation (NYSE:APA), EOG Resources Inc (NYSE:EOG), and Cabot Oil & Gas Corporation (NYSE:COG). These companies are all at least somewhat profitable, though both EOG and Cabot are desperately in need of an improved bottom line with trailing P/E multiples over 60 in both cases. Revenue was up at double-digit rates at these peers last quarter compared to the same period in the previous year. Apache carries a trailing P/E of 15, but its net income dropped 44% in the fourth quarter of 2012 versus a year earlier.

It’s possible that SM Energy is set to benefit from a coming rise in natural gas prices, but we would certainly be hesitant to take on too much commodity pricing risk. In addition, analysts at least believe that Chesapeake is better positioned to capitalize on the same trend and we think that investors should take a look at that company if they are interested in natural gas producers.

Disclosure: I own no shares of any stocks mentioned in this article.