The Zacks Analyst Blog Highlights: Chesapeake Energy, EOG Resources, American International Group, MetLife and Prudential Financial

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Nov 07, 2011, 09:30 ET

CHICAGO, Nov. 7, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Chesapeake Energy Corp. (NYSE: CHK), EOG Resources Inc. (NYSE: EOG), American International Group Inc. (NYSE: AIG), MetLife Inc. (NYSE: MET) and Prudential Financial Inc. (NYSE: PRU).

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Here are highlights from Friday's Analyst Blog:

Chesapeake Beats on Oil Volume

Natural gas provider Chesapeake Energy Corp. (NYSE: CHK) has reported sharper-than-expected adjusted third quarter 2011 earnings of 72 cents per share, striding ahead of the Zacks Consensus Estimate of 65 cents. The outperformance came on the back of a 91% expansion in liquid production volumes. The reported figure showed a modest improvement from the year-earlier profit of 70 cents.

Total revenue increased 54% year over year to $3,977 million from $2,581 million reported in the comparable quarter last year.

Guidance

Chesapeake expects its 2011 as well as 2012 total production to be approximately in the range of 1,156–1,188 Bcfe and 1,318–1,382 Bcfe, respectively, to account for impressive drilling results, particularly in Haynesville and Marcellus Shale plays.

This year's liquids production forecast range is 31–33 MMBbls, 2012 liquids production forecast range is 53–57 MMBbls. Chesapeake expects its natural gas production in the bands of 970–990 Bcf and 1,000–1,400 Bcf for 2011 and 2012, respectively.

For 2013, total production is projected in the range of 1,452–1,516 Bcfe, of which 1,020–1,060 Bcf is expected to be gas and 72–76 MMBbls for liquids.

We believe that production growth will remain at or near the top of its large-cap peer group, particularly in light of continued strong drilling results from its shale plays.

Outlook

We appreciate Chesapeake's initiative of deploying more funds toward liquids. The company has grown rapidly and now ranks as the second-largest producer of natural gas. Till date, the company has built leasehold positions and established production in multiple liquids-rich plays on approximately 6.2 million net leasehold acres. As a result of its success so far, Chesapeake expects to increase its liquids production through its drilling activities to an average of approximately 150,000 Bbls per day in 2012, 200,000 Bbls per day in 2013 and 250,000 Bbls per day in 2015.

It also holds a leading position in 12 of the top 15 unconventional liquids-rich plays in the U.S. –– the Granite Wash, Cleveland, Tonkawa and Mississippi Lime plays in the Anadarko Basin; the Avalon, Bone Spring, Wolfcamp and Wolfberry plays in the Permian Basin; the Eagle Ford Shale in South Texas; the Niobrara Shale in the Powder River and DJ Basins; the Bakken/Three Forks in the Williston Basin; and the Utica Shale in the Appalachian Basin.

In our opinion, Chesapeake is one of the most active players in the industry to manage its asset portfolio through a combination of acquisitions and disposals. In a separate press release, the company revealed plans in selling a substantial portion of its land holdings in Ohio's Utica Shale for $3.4 billion in two separate deals. It has entered a $2.14 billion deal with an undisclosed international partner to sell a 25% stake in 650,000 acres of Utica shale that the company holds with EnerVest Ltd.

In addition, Chesapeake has completed the sale of 500 million to EIG Global Energy Partners of perpetual preferred shares of a newly formed entity, CHK Utica –– a wholly owned, unrestricted subsidiary of Chesapeake that owns about 700,000 acres in the Utica. Chesapeake expects to sell up to $750 million of additional CHK Utica preferred shares to other investors, including limited partners of EIG, by November 30, 2011.

We think Chesapeake's focus on shale gas plays should provide the impetus to monetize these assets more effectively. This, coupled with the company's concentration on liquids will boost returns. However, since natural gas accounted for about 83% of Chesapeake's production in the quarter and as near-term speculations of challenging natural gas fundamentals remain, we are apprehensive that the company's results will be vulnerable to fluctuations in the relevant markets. Hence, we believe that the stock will perform in line with the group and maintain our long-term Neutral recommendation for Chesapeake.

The company, which retains a Zacks #3 Rank (short-term Hold rating), competes with EOG Resources Inc. (NYSE: EOG).

AIG Loss Soars on Weak Dynamics

American International Group Inc. (NYSE: AIG) reported third quarter operating loss per share of $1.60, which came in way higher than the Zacks Consensus Estimate of a loss of 8 cents and 84 cents reported in the year-ago quarter. Consequently, operating loss of $3.0 billion increased drastically from $114 million in the year-ago quarter.

On a GAAP basis, AIG reported a net loss of $4.1 billion or $2.16 per share as compared with $2.5 billion or $18.53 per share in the year-ago quarter. The reported quarter included net realized capital loss of $112 million against $33 million in the year-ago quarter, along with loss from divested operations of $1.0 million against gain of $4 million in the prior-year period.

Additionally, net loss from discontinued operations was recorded at $221 million versus $1.85 billion in the year-ago quarter. It also included non-qualifying derivative hedging gains of $187 million compared with $124 million in the year-ago quarter and deferred income tax valuation allowance charge of $1.18 billion against related release of $140 million in the year-ago quarter. AIG also recorded amortization charge on the Federal Reserve Bank of New York (FRBNY) credit facility of $779 million in the year-ago quarter.

Results reflected weak performance across all operating segments based on the challenging macro economic environment. This included volatile equity markets, widening credit spreads, reduced interest rates and higher property catastrophe losses. As a result, huge declines were witnessed in the market valuation of American International Assurance Co. Ltd (AIA), estimated future cash flows and reduced investment income from Maiden Lane III LLC and Maiden Lane II LLC. These factors also affected the book value per share adversely.

However, some stability was retained through improved premiums in the core insurance portfolio along with higher assets under management (AUM). AIG's ongoing business restructuring process has enabled it to focus on quality insurance and investment products and services. The company also managed to reduce its Treasury loan during the quarter, thereby enhancing capital efficiency.

Government Loan and Financial Update

On November 1, 2011, AIG announced that it repaid $972 million to the U.S. Treasury reduce the liquidation preference on one of the special purpose vehicles (SPV). Accordingly, the AIA SPV balance has been reduced to approximately $8.4 billion. Including this, the company has repaid about $45 billion so far in 2011.

In October this year, AIG announced the sanction of two new bank credit facilities totaling $4.5 billion. While one of the credit facilities is worth $3.0 billion granted by banks for four years, the other one is worth $1.5 billion for a 364-day period. The 4-year facility also includes a Letter of Credit (LoC) with a sub-limit of $1.5 billion, which can be taken out by both AIG and its subsidiaries, including Chartis, whenever required. Additionally, AIG had replaced the aforementioned new credit facilities with its existing ones, about the same value, that were announced in December last year.

In September this year, AIG issued $1.2 billion of 4.250% notes due 2014 and $800 million of 4.875% notes due 2016. The proceeds are expected to be used to pay maturing notes issued by AIG to fund the MIP.

Moreover, in August 2011, AIG reduced its government loan amount by $2.2 billion from the proceeds of the sale of its Nan Shan life insurance unit in Taiwan. As a result of this payment, AIG's loan has shrunk to about $51 billion from $182.3 billion in 2008.

Peer Take

Last week, MetLife Inc. (NYSE: MET) reported third quarter operating earnings per share of $1.11, triple pennies ahead of both the Zacks Consensus Estimate and the year-ago quarter. Operating earnings jumped 23% year over year to $1.18 billion from $958 million in the year-ago period, driven by robust growth from ALICO – acquired from AIG last year.

On Wednesday, Prudential Financial Inc. (NYSE: PRU) reported third quarter earnings of $1.07 per share, significantly below the Zacks Consensus Estimate of $1.56 per share. Earnings also contrasted to $2.12 per share reported in the year-ago quarter.

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