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Analysts say Chesapeake Energy's newly gained leverage may lead to sustainable growth

A worker on a Chesapeake Energy natural gas rig in Fort Worth, Texas
Matt Nager | Bloomberg | Getty Images
A worker on a Chesapeake Energy natural gas rig in Fort Worth, Texas

Chesapeake Energy extended the week's sharp gains with a nearly 7.6 percent rise Thursday as the firm's strategy to address its liquidity woes paired with rising oil prices has increased investor confidence in the stock.

The natural gas and oil production company priced and upsized its five-year term loan from $1 billion to $1.5 billion on Wednesday.

"Our model previously assumed CHK would exhaust its liquidity by 4Q18, but we now estimate the new term loan will extend the liquidity wall to mid '20," said Capital One Securities analyst Phillips Johnston in an analyst note published Wednesday.

Morningstar analyst Mark Hanson told CNBC that it's still hard to tell whether such growth in the share price is sustainable, but said the company has a lot of leverage given the recent increases in oil prices.

U.S. oil was last up $1.39, or 3 percent, at $48.18, near the day's high of $48.30.

Chesapeake shares gained 9.6 percent on Monday after the announcement of its $1 billion loan arrangement with Goldman Sachs, Citigroup and MUFG. The company built on much of those gains so far this week, climbing more than 20 percent.

Capital One Securities upgraded Chesapeake to "equalweight" from "underweight" based on the company's efforts to "rehabilitate its balance sheet and liquidity and to eliminate its vast midstream liabilities," said Johnston in the note. Capital One also raised its target price to $6 from $4.

Simmons & Co. also raised its target price for Chesapeake to $6 from $5, while maintaining its "neutral" rating.

The loan arrangement is the firm's second major effort in the last month to reduce debt and improve liquidity, a goal CFO Domenic J. Dell'Osso outlined early August during the company's second-quarter earnings call. Chesapeake faced roughly $2.2 billion in notes maturing in 2017 and 2018.

The first effort was the Barnett Shale divestiture announced August 10, which is expected to increase operating income through 2019 by up to $300 million a year, said CEO Doug Lawler.

Shares of Chesapeake have climbed 35.44 percent so far this year.

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