Barclays Lifts PT on Chesapeake Energy (CHK) to $3; Sees Cash Flow Improving Post-Barnett Exit

Barclays boosts its price target on Underweight-rated Chesapeake Energy (NYSE: CHK) from $1 to $3 following recent company progress in midstream contracts and Barnett Shale play.

Analyst Thomas Driscoll commented today, Chesapeake has improved its economics by addressing above-market midstream contracts in several regions and by exiting the Barnett. We are increasing 2018 EBITDA estimates (or PICF) by $635 million to reflect the recently announced Barnett transaction, the Mid-Continent midstream restructuring, and continued efficiency gains evident in CHK's new guidance. We assume Chesapeake shares will trade at a 5% discount to peers using 2018 cash flows and we have valued the debt at face value to arrive at a price target of $3 per share.

CHK will pay to exit the Barnett Shale play - but cash flow will improve. The $336 million payment to exit the Barnett and cancel midstream contracts will relieve CHK of substantial obligations and sharply boost near-term cash flow. The Barnett transaction raises pro-forma YE 2015 PV10 value by $550 million.

A $0.5-1 billion Haynesville sale could help CHK to reach its $2-billion plus asset sales target; and another package is likely to go to market his month. CHK has sold $1.2 billion in assets and the Haynesville could help it attain total proceeds of $2 billion or more. CHK is marketing production of 90-95 mmcfpd plus an undisclosed amount of acreage. Recent drilling results have been impressive and they have raised the value of undrilled opportunity, the analyst noted.

For an analyst ratings summary and ratings history on Chesapeake Energy click here. For more ratings news on Chesapeake Energy click here.

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