Credit Suisse analyst Mark Lear issued a bullish recommendation on the slumping oil & gas exploration and production in a recent note to investors. He also initiated positive coverage on some companies in the industry.
The majority of the investors in the oil& gas exploration and production industry were pleased with Lear’s positive call. However, the shareholders of Chesapeake Energy were not happy with its bearish perception about the company.
Lear downgraded his stock rating for Chesapeake Energy to Neutral from Outperform and reduced his price target from $20 to $13 per share. Currently, there is no reason to buy the shares of the energy company based on its recommendation.
Chesapeake Energy has limited outside
Lear explained that its bearish recommendation for Chesapeake Energy was based on his perception that the energy company has a limited upside to its net asset value (NAV). According to him, the existing situation of the company offers investors with little reason to become optimistic.
He noted that Chesapeake Energy aggressively reduced its rig count. Its planned reduction next year reflected a relatively weak output and cash flow. Lear believed that the company will be extremely tight with spending over the next quarter after its huge spending in the first quarter.
Furthermore, the analyst believed that Chesapeake Energy concentrate on protecting its balance sheet instead of increasing its production or expanding its holdings. In other words, the company will operate its business in a defensive manner.
“We think investors should look elsewhere for investment in this environment and consider operators with core exposure and more flexible balance sheets that are capable of accelerating NAV even at the strip,” said Lear.
Chesapeake Energy eliminated its common stock dividend
Chesapeake Energy recently decided to eliminate its common stock dividend of $0.35 per share starting in the third quarter of this year.
In a statement, Chesapeake Energy CEO Doug Lawler explained, “We believe this decision is prudent as we continue to invest and redirect as much capital as possible into our world-class assets. The elimination of the common stock dividend will save approximately $240 million annually.”
The shares of Chesapeake Energy were trading $8.75 per share, down by more than 3% at the time of this writing around 3:35 in the afternoon in New York.
The company’s stock traded between $8.40 and $27.58 per share over the past 52 weeks. Chesapeake Energy lost more 55% of stock value year-to-date. The company has approximately $6.09 billion market capitalization.