Why ‘Sell’ Recommendations Are Rising for Chesapeake Energy

Analysts’ recommendations

Based on Reuters data from 23 analysts tracking Chesapeake Energy (CHK), 48% have recommended “holds,” 39% have recommended “sells,” and 13% have recommended “buys” on the stock.

On January 14, UBS raised its price target on Chesapeake Energy by $0.20 to $2.30. Just three days earlier, Raymond James raised its target price by $0.50 to $4. On February 11, CHK closed at $2.4. The mean price target for the stock in the next year is $3.06, implying a potential upside of ~27.6% from its last closing level.

Why ‘Sell’ Recommendations Are Rising for Chesapeake Energy

“Sell” recommendations rising

In the last three months, the number of “sell” recommendations has been rising for CHK. Because of natural gas’s gloomy outlook, the company’s high production mix in natural gas, along with US crude oil’s nearing the $50 level, could be driving analysts’ deteriorating sentiments in its stock. In the first quarter so far, on average, natural gas prices have fallen ~19.6% compared to the previous quarter.

Chesapeake Energy’s PV-10 break-even values for US crude oil and natural gas are $60 per barrel and $2.75 per Mcf (thousand cubic feet), respectively. So far in the first quarter, US crude oil prices and natural gas prices have averaged $52.06 per barrel and $3.10 per Mcf, respectively. According to Chesapeake, “PV-10 is a non-GAAP [generally accepted accounting principles] metric used by the industry, investors and analysts to estimate the present value, discounted at 10% per annum, of estimated future cash flows of the company’s estimated proved reserves before income tax.”

Around 6.8% and 4.3% of the total analysts covering Cabot Oil & Gas (COG) and Noble Energy (NBL) have given them “sell” recommendations, respectively, according to the data compiled by Reuters. Moreover, their mean price targets suggest potential upsides of ~11.9%, and 62.4%, respectively, from their last closing levels.