Market Overview

Why This Chesapeake Energy Analyst Has A Zero Price Target

Share:
Why This Chesapeake Energy Analyst Has A Zero Price Target

Chesapeake Energy Corporation (NYSE: CHK) stock peaked in the middle of the Great Recession, with shares pressing $67. In the last decade, the Street has pulled back on the stock and let its value dwindle to nickels and dimes.

One analyst said Friday that even that valuation is too generous.

The Chesapeake Rating

MKM Partners analyst John Gerdes downgraded Chesapeake Energy from Neutral to Sell and cut the price target from $1 to zero. 

The Chesapeake Thesis

The downgrade is due largely to a negative read on internal operations, Gerdes said in the Friday downgrade note: "5%-10% higher capital intensity, approximately 2% lower oil production composition and the uncertainty as to the long term [viability] of the company’s capital structure." (See his track record here.)

The analyst said he expects capex to dwindle to $1 billion by 2024 as production falls by one-third and the ratio of net debt to earnings before interest, tax, depreciation and amortization (EBITDA) rises from 3.8 to 5.

"Assuming access to the current $3 billion of bank line credit capacity, which is doubtful once net debt exceeds 4x, Chesapeake could layer, if necessary, the approximately $1.14 billion of aggregate term debt due through 2023 though the funding of the $1.5 billion term loan due June 2024 is highly uncertain."

More than half of the company’s planned wells are expected to generate inferior returns, contributing to returns far below the industry median, according to 

CHK Price Action

The stock was trading 0.46% higher at 26 cents at the time of publication Friday. 

Related Links:

15 Most Popular Stocks Under $10, According To Robinhood Users

Chesapeake's $2B Asset Sale Dissolves BofA's Bearish Thesis

Photo courtesy of Chesapeake Energy. 

Latest Ratings for CHK

DateFirmActionFromTo
May 2020UBSMaintainsSell
May 2020CFRADowngradesSellStrong Sell
Apr 2020B of A SecuritiesMaintainsUnderperform

View More Analyst Ratings for CHK
View the Latest Analyst Ratings

 

Related Articles (CHK)

View Comments and Join the Discussion!

Posted-In: John Gerdes MKM PartnersAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
CMBMNorthland Capital MarketsInitiates Coverage On23.0
PPBIPiper SandlerMaintains29.0
PFBCPiper SandlerMaintains37.0
PCBPiper SandlerMaintains11.0
PBAMPiper SandlerMaintains15.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com