Chesapeake Energy Corporation (NYSE:CHK) has received an upgrade from JPMorgan Chase & Co. (NYSE:JPM). The natural gas and oil exploration company has been rated “overweight’ by JPMorgan. This is a notable improvement from the initial “underweight” rating. In addition, the bank has raised its price target from $15.50 to $20. This new price target translates to a ballpark 20 to 22 percent increase from the current stock price of $16.46 (at the time of writing).
Analysts at JPMorgan Chase & Co. (NYSE:JPM) contended that the improved financials were key contributory factors to the upgrade. “We are upgrading CHK to Overweight from Underweight based on improved financials,” JPMorgan said. The analysts also noted that the oil heavyweight may push through with another asset sale in the foreseeable future.
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While JPMorgan Chase & Co. (NYSE:JPM) is inclined to believe that Chesapeake Energy Corporation (NYSE:CHK) has reduced spending and costs successfully, it maintains that the improved financial outlook could have been partly influenced by asset sales which the company kept away from the public. The analysts also add that the brighter financial picture will help the stock to outperform, however maintaining that the stock is not cheap and that the financial risk still remains.
Are improved financials indicative of positive progress with asset sales?
Chesapeake’s frenzied asset sales made front page news for a significant part of last year. The then cash strapped energy big wig desperately needed to plug the cash drain and at the time, asset sales were the only viable play.
Could this upgrade be indicative of positive progress with the asset sales? As we reported, Chesapeake Energy Corporation (NYSE:CHK) did conclude $7 billion asset sales at the Permian basins in October last year. This huge cash inflow, coupled with inflows from other sales, could have been the all important boost that pushed Chesapeake out of the bearish incline.