SM Energy has given back most of its pre-earnings rally in less than a week, with the stock falling 7.4% since last Tuesday's close to $31.79 — the reversal arriving just as short sellers resume building positions after covering aggressively into the May 21 print.
The earnings-driven unwind is the key tension here. Two previous notes documented a significant short-covering rally and a surge of analyst optimism ahead of the Q1 release. The actual result landed softly: the stock fell 3% on the day of the May 21 report. Since then, shorts have been adding back. Short interest has climbed to 11.6% of the free float — up from roughly 11.0% a week ago and now 13.2% higher than a month prior. That means the covering seen through May 15, which the previous earnings preview noted as a 14% one-month decline in short positions, has now been more than fully reversed. Borrowing costs remain unusually cheap at 0.37%, down about 10% on the week, and availability is vast at 1,787% of short interest — there is no friction in the lending market at all, meaning new shorts are entering this trade at near-zero cost.
Options positioning has ticked modestly more defensive following the selloff, but not dramatically so. The put/call ratio is 0.35, fractionally below its 20-day mean of 0.36 and essentially neutral at just -0.22 standard deviations from average. The 52-week range on the PCR runs from 0.28 to 0.91, so current readings sit close to the most bullish end of the annual range rather than signalling panic. Options traders are not piling into puts, even after a 7% down week.
The Street remains constructive, and one notable move landed this week. Mizuho raised its Outperform target to $38 from $34 on May 27 — the most recent action and a sign that at least one house is leaning into the weakness rather than trimming. The broader analyst direction over the past two weeks has tilted positive: Raymond James's dramatic upgrade to Outperform with a $55 target — flagged as an outlier in the prior note — still anchors the top of the range, while Truist holds Buy at $39 and Keybanc sits at Overweight at $39. Wells Fargo remains the sceptic, reiterating Equal-Weight at $32, which is now essentially at-the-money. The mean target of $39.31 implies roughly 24% upside from current levels. Factor scores add nuance: EPS momentum over 90 days ranks in the 90th percentile, and the analyst recommendation differential scores at the 98th percentile — both unusually high — while the short score of 39.4 is mid-range and the EPS surprise score (11th percentile) is weak, suggesting estimates have been difficult to beat on the number even when the macro tailwind exists.
Peer context reinforces that this week's move was partly sector-driven rather than purely company-specific. TALO fell 8.9% on the week, MTDR dropped 11.6%, and CHRD was off 7.8%. EOG and FANG fared better, down 4.7% and 5.1% respectively — both are larger, higher-quality names that tend to outperform on risk-off energy days. SM's drawdown is roughly in-line with the more volatile E&P names rather than an outlier, though the YTD decline of roughly 28% noted in a prior peer note still marks a steeper derating than most large-cap peers.
One recent insider transaction is worth noting. Independent Director Ramiro G. Peru sold 24,553 shares at $33.98 on May 21 — the day of earnings — for just under $835,000. The sale is modest relative to the company's float and carries a low significance score, but the timing, at peak-post-rally prices and on the reporting date, is notable context.
The next catalyst is a full quarter away: Q2 results are scheduled for July 31. Between now and then, the dynamic to watch is whether short interest continues rebuilding from its post-covering low, and whether the Mizuho target raise draws other analysts to re-engage with a stock that the bull case still argues is trading at a deep discount to fair value.
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