Chesapeake Energy Corporation (NYSE:CHK) stock skyrocketed last week after the company’s latest earnings report as investors excitedly pushed it up by more than 25% in a single day. Still, analysts aren’t finding much to rave about when it comes to Chesapeake Energy stock, as the company just can’t seem to move past the debt burdens that have been weighing it down for years. It certainly doesn’t help matters that Chesapeake Energy guided for a miss on oil production this year.
In a note to investors following the Q4 earnings release, Credit Suisse analyst William Featherston focused on asset sales and warned that the “sub-par growth/ FCF story” continues at the energy giant.
Chesapeake Energy said its full-year budget for this year is between $2 billion and $2.4 billion, a 12% year-over-year decline that’s in line with estimates. D&C capital expenditures are expected to be down by about 14% to $1.8 billion to $2.2 billion as the rig count falls and the number of well completions falls 20%. The company also said that it expects 515 to 550 MBoed for this year, marking a 1% to 5% increase year over year, which Featherston said was about as expected after adjusting for the company’s asset sales.
The big problem was guidance for oil volumes at about 85 to 90 MBbld, which missed the adjusted consensus by about 6%. Based on current prices, Chesapeake Energy expects the program to be free cash flow positive this year, including the roughly $575 million it has raked in on asset sales.
Featherston noted that asset sales continue to be a major part of the company’s attempts to reduce its leverage, and he feels the company is bearing a burden of having to over-deliver. Chesapeake Energy carries a massive debt load that’s more than 4 times net debt/ EBITDX, and it continues to focus on large-scale asset divestures in an attempt to de-lever its balance sheet. Management said on the earnings call that they’ve been discussing several large transactions, although they also said that interest in smaller sections among private and strategic buyers has increased.
The Credit Suisse analyst warned that Chesapeake Energy has already sold most of its non-producing assets, which means that now it will have to sell assets that are generating cash in order to continue working on its balance sheet. He feels that this set-up now places the need to over-deliver on prices so that meaningful de-levering can occur. Featherston maintained his Underperform rating and $3 price target on Chesapeake Energy stock.
Tudor, Pickering and Holt analysts suggested after the earnings call that Chesapeake Energy may look to its assets in Haynesville, Utica and Marcellus as its next divesture targets. They also suggested that the company might group both undeveloped sections in with developed ones in order to create the large-scale transaction management is seeking. The company’s MidCon property could also face additional chopping, they added.
Chesapeake Energy stock hovered around its opening price of $3.20 just ahead of the bell on Monday. Still, it remains well above the $2.66 it was trading at before the latest earnings release.