Chesapeake Energy Corporation (NYSE:CHK) is set to host its first Analyst Day in two years. A day ahead of the meeting, the Bank of America Merrill Lynch has reiterated a rating of Underperform on the stock, turning its attention to the company’s bleak operating outlook.
The investor day’s backdrop is a series of steps the company has taken in the recent past as part of the CEO Doug Lawler’s commitment to simplifying the corporation. In particular, the company’s management has addressed liquidity concerns after having secured wherewithal to manage debt maturities through 2020. This, however, comes at the net cost of a near 50% jump in the fully diluted shares.
The investment bank adds though the debt is much higher as compared to Chesapeake’s rivals, the company’s actions have survived the worst of the commodity downturn. As the operating outlook does not look muscular now, there is still a potential for upside surprises on multiple fronts.
The company made a revenue peak in 2014 when it garnered $23.125 billion in sales. However, it soon fell to almost half at $12.76 billion last year. Thomson Reuters is expecting revenue to decline to $7.92 billion this year but sees some recovery to $9.2 billion next year, $10.49 billion in the year 2018 and $15.67 billion in the year 2019.
At a recent conference, the company offered an early outlook on some issues which are likely to be addressed today. It has set a goal to achieve growth in the top line between 5% and 15% CAGR through 2020. This would be a sharp contrast from the continued declines the company has been otherwise witnessing. As the management is acknowledging a probable cash burn next year, asset sales would help in filling the gap with the promise of cash neutrality in the next biennium.
The bank says while the promise leads Chesapeake to some growth, a momentum is still unlikely before 2018. “This leaves deleveraging and a required commodity recovery as the primary drivers of any meaningful multiple compression and the need for gas to hold above $3 for a portfolio that is still 75% gas,” the investment firm writes in the report.