Chesapeake Energy Corporation (NYSE:CHK) shares tumbled by as much as 10.75% to $7.18 in early trading on Tuesday following an ultra-bearish initiation report from FBR. They started the stock at Underperform with a 12-month price target of $5 per share. Also today, a Seeking Alpha contributor suggested that the company might issue a secondary offering, and Chesapeake itself announced that it has extended the expiration date and increased the size of the cash tender offers for its non-convertible senior notes.

Chesapeake Energy

Today’s decline follows gains in two of the last three trading days as SunTrust analysts raised their price target for the stock, suggesting there was still room for 40% upside as they praised the improvements in operational efficiency. Wunderlich analysts upgraded Chesapeake Energy last week as well. All these varying viewpoints should be good for plenty of volatility in the gas giant’s stock for some time.

Chesapeake Energy started at Underperform

FBR & Co. analyst Joseph Allman applauded Chesapeake Energy management for their efforts but added that the company’s “debt and transportation commitments hole still appears too deep to dig out of.” He called the company’s stock “significant overvalued.”

Allman noted that Chesapeake’s balance sheet is improving (a key argument in the bullish reports I’ve read recently). Management has been cutting the company’s debt, unloading assets, cutting costs and improving operational efficiency, and he noted that all of these efforts have contributed to the improvement of the balance sheet. However, he expects the financial stress to continue for some time, although he noted that just how long the stress will continue is more difficult to pin down.

The FBR analyst believes that an “enormous amount of asset sales” are needed in order for Chesapeake Energy to meet its upcoming debt maturities. He estimates that the gas giant must sell more than $7 billion in assets between next year and the end of 2020 to meet its obligations while leaving a “modest amount of liquidity,” but he thinks it is unlikely to achieve this “enormous undertaking.”

Chesapeake Energy stock is worthless

Allman added that he believes Chesapeake Energy stock is currently worth about $0 per share, based on NYMEX futures prices, which peg oil at $54 and gas at $3.11. He explained that while the company’s assets have value in themselves, its financial commitments more than offset the value of its stock.

Despite this, he noted that Wall Street sentiment on the company is shifting toward the positive end of the spectrum. He explained that while Chesapeake has given itself more time to pay off its debt, he is skeptical about its ability to sell the amount of assets it needs to sell to meet its financial obligations in the coming years. He believes that if the company becomes able to access the unsecured market and is able to refinance its debt, it would help quite a lot, but he isn’t confident to include those factors in his model.

Today Chesapeake Energy announced that it has managed to give itself even more time by extending the expiration date and increasing the size of cash tender offers for its non-convertible senior notes.

SunTrust ups Chesapeake Energy price target to $11

On Monday, SunTrust Robinson Humphrey analysts Neal Dingmann and Raymond Leong raised their price target for Chesapeake from $8 to $11 per share. They cited their belief that the gas giant will announce at least one major asset sale to push its total sales past $2 billion for the year and several “potentially noteworthy” wells in the near term. They expect the proceeds from the divesture to be used to pay down debt further instead of bridging cash flow outspend, as they expect Chesapeake Energy to be cash flow positive by 2018. They don’t believe the company gets enough credit for improving operational efficiencies, which have resulted in well costs in almost all of its six main regions falling “materially” as its results improve.

Seeking Alpha contributor Callum Turcan is also bullish on Chesapeake, citing the significant reduction in debt and suggesting that it “may issue a secondary offering after skyrocketing upwards.” Such an offering would be another reason to be bullish, in his view. He agrees with the SunTrust team that a large divesture could be coming soon, but he adds that the divesture could come from the Haynesville or Powder River Basin properties.