A report compiled and published by Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) has set a buy sentiment on Chesapeake Energy Corporation (NYSE:CHK). This comes amid continued asset sales within the company. Similarly, the energy heavyweight has recently made the news for its frenzied land buying in Oklahoma City, highlighting increased prospects in the near future.
The report, which is keen to highlight the announced asset sales of about $6.9 billion last month, primarily gives forecasts on Chesapeake’s future. Although the near term prospects seem somewhat dim, Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) exhibits a lot of confidence in the long haul. The bank actually expects the heightened asset sales to clear $12.8 billion. Through this, Deutsche Bank believes that the embattled energy big wig will be able to trample on its widely estimated $9.5 billion FYE 12 net debt target (though the bank’s estimate is $8.3 billion).
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Deutsche Bank further believes that most of the proceeds from the asset sales will begin streaming in during the fourth quarter. The investment bank is inclined to believe that a reasonable share of the first proceeds will be directed towards dealing with the $4 billion unsecured loan, which is currently weighing down on its balance sheet. Like most analytic firms, Deutsche Bank blames Chesapeake’s past lackluster performance on weak gas prices and leasehold capex.
Another notable highlight in the report is the emphasis placed on Chesapeake Energy Corporation (NYSE:CHK)’s new board. It has been noted that the new board has settled for a more tactful approach. Unlike the former board, which was chaired by company CEO Aubrey McClendon, the new board is more conservative and is particularly inclined towards making Chesapeake less vertically integrated. Deutsche bank believes that investors will begin seeing the effects of the new board in the third quarter’s updated outlook.
The report also offers an interesting read on gas prices. Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) is inclined to believe that the unpredictable nature of gas prices, more so towards the beginning of 2013, could greatly affect its projections for an earnings recovery in fiscal year 2013. The bank had projected a 30 percent year over year leap in earnings to $4.5 billion.
The report also notes that the blockbuster assets sales are not a sure gateway to instant deleveraging, underscoring the undisguised uncertainty that still shadows Chesapeake Energy Corporation (NYSE:CHK) in light of its past numerous controversies. Other notable energy companies that have been noted in the bulky report include CVR Energy, Inc. (NYSE:CVI) and Hilcorp. The former moved from a BUY recommendation to a SELL recommendation, while Hilcorp moved from a BUY recommendation to a HOLD recommendation.