UBS analyst William Featherston came out with a negative report on Chesapeake Energy Corporation (NYSE:CHK) after analyzing both the reduction of US natural gas prices, and the decline of production from the company. Featherston downgraded Chesapeake from a Neutral to a Sell rating, and slashed the price target from $16 to $11. Shares of CHK are currently trading at $11.18, down $0.37, or -3.20%.
Featherston observed, “In addition to our lower gas price forecast (gas represents 73% of 2015E production), we think CHK carries far too much financial leverage, prompting a material reduction in activity that is contributing to a declining production profile in 2015-16E. While CHK is just one of two companies in our universe with both declining production throughout 2015 and into 2016 and a deteriorating balance sheet (FCF negative), it trades at a material premium to peers on EV/DACF.”
Moreover, “CHK’s production has already begun to decline in 2Q, and should see accelerated declines as well completions fall from >250 in 1Q to ~180 in 2Q and just ~50 in 4Q. We forecast 2016E production declines 5% YoY to 617 MBoed, below consensus of 625 MBoed. And given the FCF deficit, we forecast CHK has below average production and cash flow per debt-adjusted share growth compared to its peers in 2015-19E.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst William Featherston has a total average return of 1.9% and a 45.7% success rate. Featherston has a -19.8% average return when recommending CHK, and is ranked #1949 out of 3632 analysts.
Out of the 19 analysts polled by TipRanks, 3 rate CHK stock a Buy, 11 rate the stock a Hold, and 5 rate it a Sell. With a return potential of 24.32%, the stock’s consensus target price stands at $13.80.