On Wednesday after market close, Chesapeake Energy Corporation (NYSE:CHK) made waves entering a transaction to transfer its Barnett assets to a PE-backed producer. In reaction, Jeffries analyst Jon Wolff reiterates an Underperform rating with a $4.00 price target, marking a 20% downside from where the stock is currently trading.
From Wolff’s eyes, the Barnett assets have been an “overhang,” resulting in “negative cash flow” and causing “an MVC shortfall on the asset.” The analyst believes that in exiting its Barnett position, Cheseapeake can now shed the weight of future contracted midstream liabilities.
Chesapeake intends to hand a cash payment of $400MM to William Partners (WPZ) to transfer its Barnett position in its entirety without confronting remuneration to a private corporation. Though currently bearish on CHK, Wolff does see light at the end of the tunnel for the energy company, explaining, “Disclosures indicate near-term cash flow accretion and provides a further beam of light for CHK’s long-term survival.”
Coupled with the Barnett transaction, Chesapeake conveyed a $66MM payment to William Partners as well as a transfer in the form of a natural gas supply contract in exchange for $146MM in cash flow.
Chesapeake additionally released preliminary guidance for 2017, which Wolff notes includes “wide initial ranges for production and capital spending.” The analyst believes these ranges should provide a cushion of flexibility surrounding commodity prices.
Wolff elaborates, “The initial budget of $1.6-$2.4 B (excluding capital interest of $200 MM) with adjusted production of roughly -2% to -6% declines. This is roughly in line with our prior estimates of $1.6 B and production decline of ~6%.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Jon Wolff is ranked #1,841 out of 4,110 analysts. Wolff has a 52% success rate and realizes 1.1% in his yearly returns. When recommending CHK, Wolff yields 9.8% in average profits on the stock.
TipRanks analytics show CHK as a Hold. Based on analysts polled by TipRanks in the last 3 months on the stock, 20% rate a Buy, 50% maintain a Hold, while 30% issue a Sell. The consensus price target stands at $5.11, marking a slightly over 1% upside from where the shares last closed.
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