Is Chesapeake The Shining Gem In Today's Oil Slick?

While oil prices remain weak, even in spite of the he death of Saudi Arabia’s King Abdullah bin Abdulaziz, there might be a shining gem amid the situation. According to Credit Suisse analysts Edward Westlake and Zachary Deschaine, Chesapeake Energy Corporation CHK is set to outperform the broader market. Amid several other downgrades, the firm upgraded the stock from Neutral to Outperform and raised its price target from $21 to $24 on Friday, January 23.

Related Link: After The Death Of Saudi Arabia's King Abdullah, Watch Crude Oil

Susquehanna additionally seems bullish on Chesapeake, initiating coverage today with a Neutral and a $22 price target, implying a potential upside of more than 10 percent.

On the flip side, Credit Suisse downgraded six other oil stocks:

Outperform To Neutral

  • Chevron Corporation CVX
  • Hess Corp HES
  • Magnum Hunter Resources Corp MHR
  • Noble Energy, Inc. NBL
all demoted from Outperform to Neutral.
Neutral To Underperform
  • Murphy Oil Corporation MUR
  • Exxon Mobil Corporation XOM

What Separates Chesapeake From Peers?

Credit Suisse stated the upgrade was made “to reflect an attractive relative valuation, a much improved balance sheet that has investment grade qualities, and our [Credit Suisse’s] expectation that the company could utilize its newly found financial strength to make a counter-cyclical M&A transaction to high-grade its asset base.”

Although there are some headwinds to this call, including the oversupply in natural gas and liquids markets, analysts still view “the current valuation as defensive with the shares trading toward the lower end of the 2015 and 2016 EV/EBITDA valuation.”

Furthermore, despite the reduction in the firm’s commodity price forecast, the increase in its NAV “reflects the accretive nature of the Southern Marcellus asset sale to SWN,” which was “the key transformative deal for CHK.”

According to Credit Suisse’s high yield research team, this transaction has the potential to “meaningfully enhance the company’s credit,” and leaves Chesapeake’s balance sheet standing as one of the strongest in the peer group.

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Posted In: Analyst ColorUpgradesDowngradesPrice TargetCommoditiesMarketsAnalyst RatingsMoversAbdullah bin AbdulazizCredit SuisseEdward WestlakeSaudi ArabiaZachary Deschaine
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