SM Energy Shares Drop 3.43% on Raymond James Downgrade Citing Oil Price Outlook and Permian Basin Challenges

SM Energy (SM) shares fell to their lowest level since April 2025, with an intraday decline of 1.85% as of Tuesday. The stock has now dropped 3.43% over the past two trading days, extending a recent downward trend that has raised concerns among investors.

The recent sell-off was exacerbated by a downgrade from Raymond James, which cut its rating on SM Energy to “Underperform” from “Outperform.” The firm cited lower oil price expectations, anticipating a prolonged period of around $60 per barrel, which could pressure the company’s revenue. Additionally, Raymond James highlighted SM’s weaker core inventory life in the Permian Basin, a key production area, as a structural concern.

SM Energy’s 2025 operational plans reflect a strategic shift toward cost efficiency. The company plans to operate three rigs in the Uinta Basin, scale back operations in the Midland Basin, and limit activity in South Texas. These adjustments underscore a focus on managing costs amid uncertain market conditions, though they may signal reduced confidence in certain regions’ short-term profitability.

Despite the downgrade, some analysts argue SM Energy is undervalued, with a suggested fair value of $38.62 compared to its recent closing price of $20.53. However, challenges such as transportation bottlenecks in the Uinta Basin and geographic concentration in key regions could hinder margin improvements. The stock’s recent performance, including a 21% drop over the past month and a 48.9% year-to-date decline, reflects broader industry pressures and investor skepticism about its growth prospects.

Structural risks, including reliance on the Permian and Uinta Basins, inventory depletion issues, and similar valuation multiples to peers, pose ongoing challenges. These factors could limit SM Energy’s ability to capitalize on operational efficiencies and may require careful execution of its 2025 guidance to attract investor confidence in the near term.