In a Jan. 10 research note, analyst John Freeman reported that Raymond James increased its target price on Chesapeake Energy Corp. (CHK:NYSE) to $4 per share from $3.50 following reports of a positive Q4/18 and accounting for the Wildhorse acquisition in its model. The stock's current share price is about $2.84.
Freeman noted that Q4/18 figures beat expectations primarily on lower-than-expected capex. Spending for Q4 should be around $545 million, lower than consensus' projection of $597 million and Raymond James' estimate of $629 million.
As for production during Q4/18, management said it should range from 462,000 to 464,000 barrels of oil equivalent per day (Mboe/d), with oil volumes between 86 and 87 million barrels per day (Mbpd). The latter compares to the Street's estimate of 85 Mbpd and Raymond James' forecast of 86 Mbpd.
Freeman relayed that in 2019, Chesapeake plans to reduce activity due to commodity price weakness. It will eliminate three rigs in the Haynesville play, taking the total number of rigs on all of its properties to 18.
"We believe this is a prudent measure that, given our capital spending outlook for 2019, should help to lower cash flow outspend to a palatable level while allowing Chesapeake to continue its pivot to a more oily operator (oil cut should rise from 17% in 2018 to about 30% in 2020)," wrote Freeman.
Raymond James estimates Chesapeake's oil production will be about 122,000 barrels per day (122Mbbl/d), lower than previous guidance of 125–130 Mbbl/d. Exploration and production capex in 2019 should be about $2.25 billion. The company will announce formal guidance for 2019 later in the quarter.
On a final note, Freeman commented it is likely that this year Chesapeake will divest of further assets, particularly ones that are undeveloped or generating little cash flow, to boost its balance sheet even though near-term liquidity is good.
Raymond James has an Outperform rating on Chesapeake.
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Disclosures from Raymond James, Chesapeake Energy Corp., January 10, 2019
ANALYST INFORMATION
Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.
The analyst John Freeman, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates, Inc. makes a market in the shares of Chesapeake Energy Corporation and WildHorse Resource Development Corporation.
Raymond James & Associates received non-securities related compensation from WildHorse Resource Development Corporation within the past 12 months.
