Chesapeake Energy Gets A Price Cut By Analysts Post Asset Sale Deal: Here's Why

Analysts lowered the price target on Chesapeake Energy Corp CHK following yesterday's divestiture announcement.

The company announced a deal to sell its remaining Eagle Ford assets to SilverBow Resources Inc SBOW for $700 million.

Truist Securities analyst Bertrand Donnes lowered the price target to $100 from $102 and reiterated the Buy rating. 

The analyst expects the company to use proceeds to drive incremental share repurchases or accretive acquisitions, although the deal is immaterial given the scale of CHK's Haynesville/Appalachia assets.

Also, the analyst expects the company to focus on expanding its LNG exposure through U.S. & International based pricing deals.

Donnes revised EBITDAX estimates to $2.595 billion from $2.586 billion (vs. consensus: $2.487 billion) in FY23 and $3.077 billion from $3.278 billion (vs. consensus: $2.848 billion) in FY24.

Benchmark analyst Subash Chandra reduced the price target to $93 from $107 and maintained a Buy rating. 

The analyst doesn't have high expectations for the rich gas sale to occur and believes CHK will be nearly net debt-free pro forma for this sale. 

Chandra expects proceeds to boost a share buyback program next year, with the current authorization representing 6% of the market cap and should be completed by end-FY23.

The analyst estimates organic FCF (after base dividend) of $190 million in H2, compared to net debt of around $1 billion.

Chandra estimates organic FCF of $600 million next year, not including $50 million-$100 million in proceeds from sale.

The analyst lowered FY23 EBITDA and EPS estimates to $2.698 billion (from $2.742 billion) and $6.01 (from $6.32), respectively.

Also, FY24 EBITDA and EPS estimates are revised to $2.830 billion (from $3.245 billion) and $7.51 (from $9.70), respectively.

Price Action: CHK shares are trading lower by 1.8% at $82.78 on the last check Tuesday.