This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.
Chesapeake Energy's (CHK) first Analyst Day in two years has some believing that the worst is over.
But the shares were moving slightly lower during the trading session Friday morning, after fluctuating throughout the presentation on Thursday.
In light of the presentation, analysts with Bank of America Merrill Lynch and Nomura both upgraded their ratings on the shares, while the Jefferies and the Deutsche Bank analyst teams raised their price targets.
"There can be little doubt this is a different Chesapeake, which has navigated the worst of its challenges and substantially improved the balance of risk," wrote Bank of America Merrill Lynch's Doug Leggate in a research note Friday.
Leggate says an inflection that should start in the second quarter of fiscal year 2017 "provides a 5% to 15% growth trajectory through 2020 and drives a long awaited change in mix in favor of liquids." For Leggate, this is the catalyst for a 3x increase in earnings before interest, taxes, depreciation and amortization, at $60 oil and $3 gas, and could set up Chesapeake as "one of the fastest rate of change stocks in the sector with many legacy balance sheet and cost issues resolved." He upgraded CHK to "Neutral" from "Underperform" and increased the price target by $4 to $10.
Similarly, Nomura's Lloyd Byrne upped the firm's rating on the stock to "Neutral" from "Reduce" and raised the price target to $7.50 from $4, as he sees potential upside of approximately 8.5%. Byrne says there are two particular plays that the market will watch closely going forward: Powder River Basin and the Wedge.
CEO Doug Lawler was "excited" about the Powder River Basin as he says there are 1.7 billion barrels of recoverable resources there.
"We have a 730,000-acre stacked plate potential there with 2,600 locations and breakeven prices of $35 to $45 range," Lawler said during the Analyst Day presentation. Byrne believes that management has been able to "unlock tapped potential at an economical breakeven."
As for the Wedge, the research analyst notes Oswego continues to "deliver impressive results." Lawler said that Chesapeake is seeing returns of greater than 170% from Oswego. But for Byrne, scale will be the issue. He added that Osage potential needs to be proved.
Byrne also noted that Lawler and CFO Domenic "Nick" Dell'Osso "deserve a lot of credit for a substantive repositioning," which echoes Carl Icahn's sentiments. The billionaire reduced his position in Chesapeake in the middle of September to recognize a capital loss for tax-planning purposes, but said in a statement that "over the last few years Doug Lawler and his team have done an admirable job, especially in light of the circumstances."
Analysts with Jefferies and Deutsche Bank both said that Chesapeake's capital structure has improved and raised their price targets -- Jefferies bumped its target by $1, to $5, and maintained an "Underperform" rating, while Deutsche increased its target to $9 from $6, keeping its "Hold" rating."While the path toward equity value creation is more gradual than peers and comes with higher commodity and financial risk, considering CHK's solid execution, we left [Analyst Day] with a more positive outlook," wrote Deutsche's Josh Silverstein in a note Friday.