Chesapeake Energy Investors are Overreacting, Oppenheimer Says

The two-day decline in Chesapeake Energy Corporation CHK is the result of an “overreaction to overspending,” Oppenheimer analysts opined. Chesapeake’s Q4 EPS of $0.11 was less than half of the expected $0.23, as both volumes and realization were lower than expected. Despite this, Chesapeake Energy has “one of the most attractive asset portfolios of any E&P company,” according to the analysts.

The analysts placed a $22 price target on Chesapeake, reflective of a 6x 2015 cash flows estimate. Risks to their analysis include lower natural gas, crude and liquefied natural gas prices, poor operating results, and costly government regulations.

However, the analysts stated that the “upside potential is greater than the downside risk from lower natural gas prices.” Oppenheimer based this analysis on the expectation that Chesapeake Energy is focusing on capital efficiency, cash-flow growth and balance sheet improvement.