Chesapeake Energy’s stock could double in a year, analyst says

Shares of Chesapeake Energy surged Thursday, after Stifel Nicolaus issued a bullish research note that suggested the stock could double in a year.

Analyst Karl Chalabala kicked off coverage of the natural-gas and oil-exploration company with a buy rating, as he believes the stock would give investors exposure to a “bullish demand cycle.”

At Stifel, a buy rating means the stock is expected to return more than 10% over the next 12 months. But Chalabala maintains an even more bullish outlook, as his stock price target of $10 is 100% above Wednesday’s closing price of $5.

The stock
 closed up 1.8% on Thursday. Volume of 40.2 million shares made the stock the fourth-most actively traded on the New York Stock Exchange.

“Following a wave of asset divestitures, debt repayments and midstream obligation renegotiations, we believe Chesapeake is well-positioned to succeed in the North American shale low-price commodity environment,” Chalabala wrote in a note to clients.

In Chesapeake’s annual report released earlier this month, the company said it had net proceeds of $2.3 billion from the sale of oil and natural-gas properties in 2016 and into 2017, which it used to pay down debt and for operations.

As of Feb. 24, 2017, the company had a debt balance of $9.1 billion, down from $9.7 billion at the end of 2015.

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Besides a healthier balance sheet and a more optimistic outlook for the energy industry, Chalabala said he believes Chesapeake’s companywide technology revolution “foreshadows further productivity gains beyond current results,” and that current share-price valuations are “compelling.”

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The stock has plunged 27% year to date, while crude-oil futures
 have shed 11%, the SPDR Energy Select Sector exchange-traded fund
 has slid 8.6% and the S&P 500 index
 has gained 4.8%. Over the past 12 months, however, Chesapeake shares have climbed 23% while crude oil futures have jumped 20% amid nagging concerns that U.S. shale-oil produces will upend a pact to limit global oil production led by the Organization of the Petroleum Exporting Countries.

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