Potential Catalysts Could Drive Chesapeake Energy Shares Higher; Wunderlich Upgrades

Citing an improved financial position and maintained strong operations, Wunderlich has upgraded Chesapeake Energy Corporation CHK to Buy from Hold and raised its target by $4 to $10.

"We believe as the company continues this process, it can exhibit production growth, higher cash flows and multiple expansion. In fact, we believe there are multiple potential catalysts for CHK that can drive its stock higher," analyst Jason Wangler wrote in a note.

Further, the ongoing better commodity environment and financial markets provide further tailwinds to the company's operations. Chesapeake updated commentary shows forecasted annual production growth of 5–15 percent from 2016–2020.

Related Link: Director Dunham Buys 350,000 Shares Of Chesapeake Energy At $6.07/Shares -Form 4

Wangler expects Chesapeake is likely to see an inflection point in production mid-2017, bringing back the company to growth path while still spending at a prudent level.

In addition, the planned asset divestitures and the ongoing tender offer for multiple tranches of debt should not just aid in reducing the overall debt level, but should also cut further into its 2017 maturities. Chesapeake has been able to lower its potential 2017 debt from $2.2 billion in 2015 to an estimated $660 million at this point in time.

Currently, Chesapeake has about $3.9 billion in liquidity between cash-on-hand and its credit facility, which can help fund any outspend.

"We believe CHK's balance sheet should improve further with the results from its ongoing tender offers that should be finalized next week and look for even more incremental data from its newly scheduled analyst day next month, which could further define upcoming opportunities," Wangler added.

The analyst's current per share estimates are $(0.30) for 2016 and $0.57 for 2017. Wangler sees cash flow per share of $1.15 for 2016 and $1.87 for 2017. Furthermore, he expects Chesapeake to generate positive cash flows of around $1.0 billion in 2016, cash flow negative by about $500 million in 2017 and cash flow neutrality in 2018.

Shares of Chesapeake rose 13.66 percent Thursday to close trading at $7.74. In the pre-market hours on Friday, they fell 1.94 percent to $7.59. Within 10 minutes of the regular trading session, Chesapeake was seen at $7.69, down 0.65 percent on the day.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!