Sterne Agee Issues Stern Warning on Chesapeake Energy

Sterne Agee is out with a harsh criticism of Chesapeake Energy Corporation CHK this morning, while downgrading the company to Underperform and slashing a price target of $9 on the $14 stock.

Sterne's analysts said that the company has "questionable capital allocation" and a free cash flow deficit that "concerns us." All of this seems to be a hangover from prior management, which the analysts blamed for "sub-optimal capital allocation." The analysts cut their estimates as well in the belief that the rest of Wall Street will follow them lower.

Chesapeake Energy shares have dropped by 28 percent year-to-date as of yesterday's close; however, Sterne noted that shares continue to trade at a "premium."

The analysts, who acknowledged being "late on this call," said that Chesapeake shares are still overvalued. The stock is indicated down more than 3 percent in premarket trading to $13.68.