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Chesapeake Energy: Riding High along with Crude Oil Prices

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Chesapeake Energy: Riding High along with Crude Oil Prices PART 1 OF 4

Chesapeake Energy: Riding High along with Crude Oil Prices

Chesapeake Energy stock

Chesapeake Energy (CHK) continued to rise last week even as crude oil prices (UCO)(DBO) rose above $57 per barrel.

In the week ending November 10, Chesapeake Energy stock rose ~11%, compared to the previous week, which ended on November 3. In the same period, crude oil prices rose ~2%.

Chesapeake Energy: Riding High along with Crude Oil Prices

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Political upheaval in Saudi Arabia caused oil prices to rise to $57.35 per barrel on November 6—the highest level in over two years. While prices fell to $56.74 by the end of the week, they’re still 8.4% higher than the beginning of the year.

Meanwhile, Chesapeake Energy stock has fallen ~40.2% year-to-date. As you can see in the graph above, the company has also performed poorly compared to the broader energy industry (XLE), which has fallen ~9% since the beginning of the year.

Also, Chesapeake Energy stock and XLE have both underperformed the broader market (SPY)(SPX-INDEX) by a significant margin. SPY has risen ~14.6% since the beginning of the year.

The battle of bulls and bears

The rise in oil prices could just be the catalyst CHK stock needs. Following its 3Q17 earnings, its stock fell ~8% on the back of missed revenue estimates, coupled with the fact that the company increased its capital expenditure guidance range for 2017 from the previous $2.1 billion–$2.5 billion to a new range of $2.3 billion–$2.5 billion.

The additional spending decision specifically might not bode well with CHK investors, given the company’s massive debt load of ~$9.8 billion (its principal debt balance as of 3Q17). CHK’s market capitalization is ~$3.7 billion.

The consistent uptrend in crude oil prices, however, has caused the market to ignore these negative developments even as CHK stock continues to ride along with crude oil prices.

Investors will, therefore, keep a close eye out to see how far crude oil can take CHK’s stock and who wins the battle of bulls and bears.

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