Chesapeake Energy

Stock: CHK

Rating: Good

Author: Waleed M. Tariq

Summary

  • Chesapeake Energy emerged from bankruptcy in early 2021.
  • CapEx and reinvestments will improve CHK’s income and FCF.
  • Due to chapter 11 procedures, the stock is cheap but has growth potential.

Bullish

  • Post-bankruptcy corporation has low leverage and substantial liquidity.
  • Chief’s acquisition will enhance cash flow by $50 to $70 million.
  • Cheap valuation and growth possibilities make me bullish with a 35% upside.

Bearish

  • Potential investors are worried about the company’s debt after the bankruptcy.

Company Highlights

  • By 2021, the company had 8,200 wells. Portfolio is 85% natural gas, 15% liquids.
  • After bankruptcy, creditors with impaired claims received $600 million in rights.
  • The company operates in the Marcellus, Haynesville/Bossier, and Eagle Ford Shales.

Finances

  • Chesapeake decreased their debt by $9.4 billion by granting creditors equity.
  • In 2021, the company generated $2.145 billion in adjusted EBITDAX, reinvested $750 million, and had 0.83 net debt to EBITDAX.
  • Over $903 million in cash and $1.7 billion in unused borrowing facility can cover upcoming CapEx, interest, acquisitions, and dividends.

Proved Undeveloped & Developed Reserves

  • Chesapeake owns 661 mmboe for PUDs with $8.7 billion in future net revenue or $5.1 billion at present value.
  • Chesapeake has 935 mmboe PDRs working at 98% capacity with $14.5 billion in future net revenue and $8.65 billion at present value.

Valuation

  • Average industry target price is $83.45 with $10.81 FCF, up 5.1%. Forward FCF forecasts $131.24 per share, up 65%. FCF’s $107.35 price target is up 35%.

Conclusion

  • With the Chief purchase finalized and CapEx correctly deployed, the company is likely to achieve its cash flow expectations. This boosts stock valuation and shareholder rewards.