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DENVER - SM Energy Company (NYSE:SM) and Civitas Resources, Inc. (NYSE:CIVI) announced additional details Monday regarding their planned merger, including leadership structure, divestiture targets and expected synergies. Civitas, currently trading at $27.71 with a market capitalization of $2.43 billion, brings a strong financial profile to the merger with a P/E ratio of just 3.98.
The companies plan to target at least $1 billion in divestitures within the first year following the transaction's completion. This initiative, combined with identified synergies, aims to accelerate debt reduction and capital returns to stockholders. Civitas already offers a substantial 7.03% dividend yield and boasts a remarkable 39% free cash flow yield, according to InvestingPro data.
The merged entity expects to achieve annual synergies of $200 million, with potential to reach $300 million. These cost savings are projected to be implemented in 2026 and fully realized by 2027, representing a net present value of $1.0-$1.5 billion. InvestingPro analysis indicates Civitas is significantly undervalued at current levels, which could make this merger particularly timely. InvestingPro's comprehensive Pro Research Reports provide deeper insights on over 1,400 US equities including Civitas.
Upon closing, Beth McDonald will serve as President and Chief Executive Officer, with Wade Pursell as Chief Financial Officer and Blake McKenna as Chief Operating Officer. The 11-member board will include six representatives from SM Energy and five from Civitas, with Julio Quintana serving as Non-Executive Chairman.
The companies have outlined three main categories of expected synergies: $100-$150 million in drilling, completion and operational efficiencies; $70-$95 million in general and administrative savings; and $30-$55 million in reduced capital costs.
Both S&P Global Ratings and Fitch Ratings have placed SM Energy on positive watch following the merger announcement, citing enhanced scale and diversification of the combined company.
SM Energy also announced its participation in several upcoming investor conferences, including the Stephens Annual Investment Conference on November 20, the Bank of America Leveraged Finance Conference on December 2, and industry events hosted by Mizuho and Capital One Securities on December 9.
The announcement was made in a press release issued by the companies. InvestingPro Tips reveal that Civitas management has been aggressively buying back shares and the company maintains a high shareholder yield - factors that could influence the combined entity's approach to capital allocation. Discover these and 5+ additional ProTips, along with extensive financial metrics and expert analysis, with an InvestingPro subscription.
In other recent news, Civitas Resources reported third-quarter earnings that significantly exceeded analyst expectations. The company posted adjusted earnings of $1.93 per share, surpassing the consensus estimate of $1.31 by 47%. However, revenue slightly missed projections, coming in at $1.17 billion compared to the anticipated $1.18 billion. Civitas Resources also reported oil production of 158,000 barrels per day and total production of 336,000 barrels of oil equivalent per day, both marking a 6% increase from the previous quarter. These developments reflect the company's operational performance in the recent period.
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