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On Apr 2, Zacks Investment Research upgraded natural gas provider Chesapeake Energy Corporation (CHK - Analyst Report) to a Zacks Rank #2 (Buy).

Why the Upgrade?

Operating environment and future growth prospects seem bright for Chesapeake Energy, as reflected by the rising earnings estimates for this Okla.-based company. Over the last 7 days, the Zacks Consensus Estimate for the first quarter of 2013 has increased 4.54% to 23 cents per share, while that for 2013 went up 3.39% to $1.22 per share.

The momentum has been strong since Chesapeake Energy released its fourth-quarter and full-year 2012 earnings results on Feb 21. Adjusted earnings per share came in at 26 cents per share, comfortably beating the Zacks Consensus Estimate of 14 cents by almost 86%. The outperformance came on the back of improved oil production.

Total revenue improved 29.8% to $3,539.0 million from $2,727.0 million a year ago. The top line also got the better of the Zacks Consensus Estimate of $1,532.0 million.

Apart from delivering positive earnings surprises in two of the last four quarters with an average beat of 8.47%, the company also has an impressive long-term expected earnings growth rate of 11.0%.

Recently, Chesapeake Energy entered into a definitive agreement to sell proven reserves and undeveloped leasehold interests in Kingfisher and Canadian counties, Okla. to Houston-based energy company Gastar Exploration Limited (GST - Snapshot Report) for $75.2 million. Gastar would also buy back its common shares held by Chesapeake for $9.8 million and settle all litigation.

The sale of assets and shares are in line with Chesapeake Energy’s strategy to reduce its long-term debt by monetizing its assets and cutting lease-hold spending. The Gastar transaction was mainly aimed at reining in debt as well as filling the funding gap for its mounting expenses in the wake of continued low natural gas prices.

In light of the downtrend in gas prices, we appreciate Chesapeake Energy’s plans of deploying more funds to drill liquids-rich plays, mainly for the development of its holdings in the Eagle Ford Shale, Granite Wash and Mississippi Lime.

Other Stocks to Consider

In addition to Chesapeake Energy, certain other energy operators like NGL Energy Partners LP (NGL - Snapshot Report) and Calumet Specialty Products Partners L.P. (CLMT - Snapshot Report) offer value and are worth buying now. Both these firms sport a Zacks Rank #1 (Strong Buy).
 

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