SunTrust Upgrades Chesapeake Energy To Buy, Notes Potential Of Duplicating Last Year's Success

In a report published Monday, SunTrust Robinson Humphrey analyst Neal Dingmann upgraded shares of Chesapeake Energy Corporation (NYSE: CHK) to Buy from Neutral with a price target raised to $15 from a previous $14 as the company is expected to "duplicate last year's success" and sell non-core assets, or even an entire sale of the company.

Dingmann said that he "would not be surprised" to see Chesapeake to initiate another round of asset sales at one or two of its seven primary operating regions. The company could generate over $500 million in proceeds, which could be used to "take activity higher" than the company's year-end 2014 forecast of the nine to 19 rigs.

Dingmann also noted that Chesapeake is "one of the most asset rich companies" among his coverage with a net asset value "well north" of his $15 price target. The company's large position could enable it to "carve off" non-core sales as it did last year when it sold the Southern Marcellus/Eastern Utica acres for $4.975 billion.

The analyst also discussed Chesapeake's operating efficiencies and pointed out improvements at its operations at Utica and Eagle Ford. At Utica, the company "improved massively" its efficiencies with its spud/rig release around 13 this year versus 19 in 2013, lateral lengths up to 7,900 feet this year versus 5,150 feet in 2013 along with cost per lateral foot down nearly 30 percent from 2013.

On an absolute basis, Dingmann calculated that well costs have increased from $6.7 million to $8.2 million, but with much higher internal rate of return (IRR) and net present value (NPV).

Finally, the analyst stated that he "would also not be surprised" to see an asset light company "make a run" at Chesapeake to take possession of its seven operating regions.