Chesapeake Energy's Southwestern Energy deal 'creates a US shale gas powerhouse' - Mizuho
Mizuho analysts upgraded Chesapeake Energy (CHK) to Buy from Neutral, raising the firm's price target for the stock to $104 from $96 per share in a note Friday.
Analysts told investors that the acquisition of the company's smaller rival, Southwestern Energy (NYSE:SWN), is accretive in the long term.
«In our opinion, the much-anticipated merger between CHK and SWN not only creates a US shale gas powerhouse (~7.9 bcfe/d production) with operational and marketing flexibility, demonstrable cost synergies of at least $400mm annually by YE25 are accretive to both NAV and 2025+ multiples,» analysts wrote.
«Critically, we estimate the pro forma entity has a FCF breakeven of ~$2.50/mmbtu in 2025/26 despite maintaining the higher GP&T cost structure at SWN in our model,» they added.
The analysts explained that while near-term natural gas price weakness, below-peer free cash flow in 2024, and higher pro forma leverage are risks, they «see ~30% to their updated NAV of $104/sh.»
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