Bank of America Merrill Lynch Reiterates Buy Rating, $28 PT for Chesapeake Midstream Partners
In a company update published earlier today, Bank of America Merrill Lynch reiterated its Buy rating and $28.00 price target for Chesapeake Midstream Partners, L.P. (NYSE: CHKM).
BofA Merrill Lynch went on to say “Overall, we view the potential sale of CHK's (Chesapeake Energy) CHKM interests to GIP as a significant positive for CHKM unitholders. First and foremost, if the ~$4bn price tag mentioned in media reports is achieved as part of a sale (and this price tag may include CHK's midstream assets not currently yet owned by CHKM), the sale may go some ways to meeting CHK's targeted 2012 asset sales and shoring up its balance sheet/liquidity. As CHKM's largest customer by far, market confidence around the health of CHK can only benefit CHKM, in our view, and could serve to lower CHKM's overall business risk profile. Secondly, we would expect CHK to maintain its current contractual guarantees (minimum volume commitments and/or rate redeterminations) around CHKM assets as part of any sale. Finally, GIP has not historically invested in significant midstream energy assets outside of its CHKM ownership stakes and a 50% ownership ($700mn investment) in the Ruby Pipeline, a natural gas pipeline from the Rockies to the West Coast. However, we think CHKM's growth under GIP ownership may be able to accelerate by 1) having greater freedom to pursue non-CHK, third-party volumes 2) having the resources to develop CHK midstream assets not in currently in CHKM (assuming these are part of any transaction) and 3) Ruby may be a potential eventual asset drop-down candidate to CHKM.”
Chesapeake Midstream Partners, L.P. closed yesterday at $24.17.
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