UPDATE: CapitalOne Resumes Chesapeake Energy (CHK) at Equal-weight
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CapitalOne resumes coverage on Chesapeake Energy (NASDAQ: CHK) with a Equal-weight rating and a price target of $57.00.
The analyst comments "Our reservations primarily center around the company’s declining cash flow profile and the stock’s valuation. The former headwind is likely not fully understood by the Street. It is primarily a function of a declining oil production mix on the backdrop of flat overall volumes on a boe basis. As we look a few years beyond '21, CHK’s shrinking cash flow profile leads to declining FCF yields over time (while most comps show yields that grow over the same timeframe) and modest EV/EBITDA multiple expansion over time (while most comps benefit from multiple compression). CHK ranks in the Lower Tier of our E&P Relative Bias Index scorecard as a result of this phenomenon, as well as its subpar ranking on upside to NAV and bottom quartile recycle ratio. Our $57/share price target represents +18% upside to where shares currently trade vs the gas peer median upside of +30%. We would prefer to see a pullback to a more attractive entry point before getting more aggressive on the stock."
Shares of Chesapeake Energy closed at $50.74 yesterday.
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