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RBC Capital Upgrades Chesapeake Energy, Sees Margins Improving Over Coming Years

RBC Capital Upgrades Chesapeake Energy, Sees Margins Improving Over Coming Years
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RBC Capital Markets has upgraded Chesapeake Energy Corporation (NYSE: CHK) to Sector Perform from Underperform, saying the company’s lower cost structure should boost margins over the next few years.

Chesapeake's Strategy Moving Forward

Chesapeake is simplifying its corporate structure, investing on highest returning assets and reducing leverage. Analyst Scott Hanold said the improved margins and balance sheet enhancements offer more runway for growth.

The company recently reiterated its long-term targets of 5–15 percent growth, $2 billion–$3 billion of debt reduction and 2x debt-to-EBITDA. Further, Chesapeake expects to double its EBITDA by 2018 while increasing liquids contribution to more than 30 percent of production.

Related Link: Chesapeake's 4-Prong Strategy To Reduce Debt And Kick-Start Growth

Analyst Take

“In our view, this outlook is achievable and competitive with top-tier operators but debt reduction will require strong asset sale execution,” Hanold wrote in a note.

“In a tough market, we think the balance sheet has been managed well but timing on debt reduction is open-ended outside of a Convertible redemption,” the analyst continued.

The upcoming catalysts include oil growth from Powder River assets, Mid-Con opportunity, well results from natural gas assets and restructuring of Eagleford midstream deal.

“Once a sustained commodity price of $60/$3 occurs, we think CHK can post sustained accretive production growth without further impairing its balance sheet,” Hanold added.

The analyst raised his price target by $1 to $8 on Chesapeake shares, which closed Monday’s trading at $6.36.

At last check, Chesapeake was down 0.47 percent at $6.33.

Full ratings data available on Benzinga Pro.

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Latest Ratings for CHK

Apr 2018CitigroupDowngradesNeutralSell
Mar 2018BernsteinDowngradesMarket PerformUnderperform
Mar 2018UBSInitiates Coverage OnBuy

View More Analyst Ratings for CHK
View the Latest Analyst Ratings

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