October 10, 2012 – Chesapeake Energy – The embattled energy big-wig has made the news this year for many varied reasons including frenzied asset sales and major board shakeups. Nonetheless, Deutsche Bank has overlooked these factors and taken a bullish stance on some of its debt – Could the stock be next?  Maybe…  Maybe not…in the same report Deutsche Bank downgraded a competitor – SandRidge Energy (SD) from BUY to HOLD.

Some of the key highlights detailed in the bulky report include the company’s widely documented asset sales. According to the report, the heightened asset sales should net the company close to $12.8 billion. The investment bank goes on to note that this amount will be instrumental in meeting the FYE 12 net debt target which has widely been projected at $9.5 billion.

Similarly, Deutsche Bank has convictions that the proceeds from the asset sales, which it expects to start streaming in the 4Q, will be used to address the $4 billion unsecured loan that is currently shadowing the company. The successful execution of the asset sale program is a major positive for Chesapeake Energy (CHK) and it helps set the stage for a full recovery. Additionally, the bank expressed its confidence in the company’s new board and applauds their more conservative approach.

In brief, the report demonstrates confidence in Chesapeake’s long term future, projecting a 30 percent year over year leap in earnings assuming natural gas prices hold through the winter months.

All this begs one question; where does Chesapeake Energy head from here?

Despite its past rickety performance, Chesapeake Energy seems to be moving on swiftly. Brimming expectations related to its increased asset sales have been documented ever since August and bullishness seems to creeping back into the long embattled company.

One very important factor for Chesapeake Energy (CHK) will be the price of natural gas this winter.  Chesapeake Energy’s gross revenue substantially correlates to the price of natural gas.   They will generate over 70% of their revenue from the sale of natural gas – per Deutsche Bank – and since the company is completely unhedged – they are still very exposed to any weakness in natural gas price.

Chesapeake Energy (CHK) is one to watch in the coming months. At the time of writing, Chesapeake Energy was trading at $19.61 after opening trading at $19.44.

More about our coverage of the natural gas market can be seen here - Natural Gas Infrastructure Investment Case

Chesapeake Energy – 2019 Senior Notes upgraded to buy at Deutsche Bank – Written by a 3rd party author exclusively for RulingTheMarkets.com