Wall Street loses faith as Chesapeake stock falls to 20-year low

TORONTO (Bloomberg) - Chesapeake Energy Corp. collapsed to a 20-year low Wednesday, one day after the shale gas driller warned it may not be able to outlast low fuel prices and issued a “going concern” notice.

Shares fell as much as 24% intraday to their lowest since 1999. The stock also briefly dipped below the $1/share mark, and Wall Street isn’t optimistic on Chesapeake’s future.

“While we don’t expect this move to come as a surprise given balance sheet issues, the going concern warning in the most recent 10-Q highlighted a declining leverage covenant that may be [too] difficult overcome in our view,” Tudor Pickering Holt & Co. said. The Houston-based energy investment bank on Wednesday downgraded its stock recommendation to a sell from hold.

Chesapeake’s Haynesville shale asset is the most likely candidate for a sale, though “production (and value) is declining by the day as the asset has entered base decline,” Tudor analyst Sameer Panjwani wrote in a note to clients.

Meanwhile, Chesapeake’s $1.3 billion of 8% senior unsecured bonds maturing in 2025 dropped $0.035 to $0.605 on the dollar, Trace prices show. The bonds are trading at a record low.

Sanford C Bernstein is also bearish on Chesapeake’s survival prospects. Chesapeake could look to tap its revolver, or engage in more debt-for-equity transactions, but “neither of these options give us comfort about the prospect of the stock over the next 12 months,” analyst Bob Brackett said in a note. Bernstein cuts its price target to $0.50 from $1.25 per share, reiterating an underperform recommendation.