FBR Capital Recommends An IPO or Spin Off at Chesapeake Energy (CHK)
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Analysts at FBR Capital are recommending that Chesapeake Energy (NYSE: CHK) take bold steps to address the value disconnect in the shares, which they say is not operations-related. The firm is recommending an IPO/spin-off of a major asset such as Fayetteville and/or the sale of a substantial portion of its conventional assets in one fell swoop.
The firm notes that Chesapeake is trading at a significant discount to the 3P NAV value of $41/share. They suggest this discount is due to a stretched balance sheet and lack of sufficient non-dilutive capital to facilitate the continued transition of the asset base from conventional to unconventional.
FBR also said if the company hedges all its production through 2012 at current futures prices, then the funding gap could decline to only $2.7 billion before asset sales.
The firm believe that in the next 12 months, the company will be able to execute upon some form of the above mentioned ideas. They are reiterating their Outperform rating and $35 price target, which is 85% of 3P NAV of $41 per share.
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Chesapeak in the CAT BIRD SEAT
I live in the heart of the Marcellus Shale gas discovery Upstate N.Y. Geologists here at the University beleive it is the largest in the world.Chesapeak was the first player in !! And purchased land as cheap as 5$ per acre. Now the price is driving up to 7500$ an acre. Locally there is frenzy to participate.Chesapeak has huge leverage. well positioned and ready to drill. Rumors it will partner with British Petrolium here in N.Y.
CHK
I agree with the analyst at FBR Capital. As a shareholder, the stock has done nothing in the past year--it's been a major disappointment. No wonder one of the Fast Money regulars hates this stock.
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J. Berger on Nov 17, 2009 05:49 PMUnfortunately, the CEO has been unable to adjust to the realities of the current market due to his personal disappointments on valuation of his personal holdings