Chesapeake Energy received a key upgrade from analysts at Wunderlich, who have moved from Hold to Buy. They also raised their price target from $6 to $10 per share, citing the gas giant’s improving balance sheet for the upgrade. Despite the upgrade, shares of Chesapeake Energy closed down 1.49% at $7.62 during regular trading hours on Friday as one Seeking Alpha contributor warned that the stock was overbought.
Chesapeake Energy guides for production growth
In a report dated September 9, Wunderlich analyst Jason Wangler expressed satisfaction with the improvements in Chesapeake’s financial position this year while also “maintaining strong operations.” He believes that as the company continues the process it has already started, it will be able to move into production growth.
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He notes that the company had already given an outlook into next year for flat to down production after announcing the Barnett transactions. It would be the third consecutive year of flat to down production. However, Chesapeake Energy’s updated guidance suggests 5% to 15% annual production growth between 2016 and 2020. Wangler expects the energy giant to see an inflection point in the middle of next year that returns it to growth while keeping spending “at a prudent level.”
Chesapeake moves toward cash flow growth
The analyst believes Chesapeake’s energy is being driven by its strong asset base and expects the continuing operational improvements to enable growth while moving it toward neutral cash flow in 2018. He adds that as the company continues to slim down in line with the current commodity pricing environment, it should be able to achieve these goals.
He adds that Chesapeake Energy should be able to improve its asset monetization as it continues to cut debt through divestures. Already this year, the company has sold more than $1 billion in assets, and it expects another $900 million in sales in the second half of this year. Chesapeake expects to divest another $2 billion to $3 billion by 2020.
Wangler also believes the improving commodity market and financial markets offer tailwinds to match Chesapeake’s “strong operational gains.”
Chesapeake Energy became overbought
Seeking Alpha contributor Achilles Research warned on Friday that Chesapeake Energy became overbought earlier in the week as investor optimism was renewed. As a result, the writer suggested it might be time to tread carefully. The stock climbed 14% in a single day and 61% within a month.