With Chesapeake Energy (NYSE:CHK) saying at its Analyst Day that they're going to continue with their strategy of acquiring acreage in 2011, Ticonderoga Securities said they see nothing to change the outlook for the company until they finish that stage of their operations.
Ticonderoga said, "CHK's outlook for 2011 of continued acreage spending with joint venture funding means more of the same in the near-term. Given the stock’s under performance, the market has clearly disagreed with management’s analysis of the value added behind the 5 major joint ventures agreements CHK has announced since mid-2008. Although CHK appears steeply undervalued at a P/NAV of 40%, we see nothing that has changed that view among investors and maintain our neutral rating on CHK as we look ahead to 2012."
On the other hand, once the expansion stage slows down, presumably in 2012, Chesapeake could begin a long upward run. That assumes they slow down spending and pay down their debt.
"Barring any new 'million acre plays' beyond what CHK sees today, the company would expect its aggressive acquisition of land to fall off in 2012, allowing the company to generate free cash flow and reduce debt in order to improve its investment grade," concluded Ticonderoga.
Ticonderoga maintains a "Neutral" on Chesapeake, which closed at $22.96 Thursday, dropping $0.28, or 1.20 percent.
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