Chesapeake Energy Stock Didn’t Rise despite Rise in Natural Gas


Nov. 20 2020, Updated 4:13 p.m. ET

Chesapeake Energy stock

Chesapeake Energy (CHK) stock has fallen a significant ~23.0% since the beginning of 2017. For the most part, it’s mirroring natural gas prices (UNG) (UGAZ), which have fallen ~15.0% since the beginning of the year.

CHK also underperformed the Energy Select Sector SPDR ETF (XLE), which has returned approximately -5.5% year-to-date. The S&P 500 ETF (SPY) returned ~5.8% in the same period.

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Why CHK stock didn’t rise

Natural gas prices started recovering last week. But as you can see in the above graph, CHK stock continued to fall. That was most likely due to its weaker-than-expected 4Q16 earnings.

The company reported 4Q16 revenue of ~$2.0 billion compared to an estimate of ~$2.6 billion. It reported adjusted EPS (earnings per share) of $0.07, while Wall Street analysts’ consensus EPS estimate was $0.09. It also reported a 13.0% fall in 4Q16 production volumes compared to 4Q15.

To know more about CHK’s 4Q16 and fiscal 2016 performances, read Natural Gas’s Gains Failed to Lift Chesapeake’s 4Q16 Earnings.

Having said that, Chesapeake Energy (CHK) stock had a good run in 2016, given the trials it went through. It ended 2016 on a positive note after its Haynesville divestiture news in December 2016 and its debt management efforts deployed throughout the year. These included a combination of debt exchanges, open market repurchases, and equity-for-debt exchanges. Asset sales were another key strategy that Chesapeake used to reduce its debt. For more information, read Inside Chesapeake Energy’s Debt Management Efforts in 2016.

Key management objectives for 2017

Chesapeake plans to achieve 10.0%–20.0% annual oil growth by 2020. That could positively affect CHK’s 2017 revenues if crude oil prices rise sustainably. CHK expects its exit-to-exit total production to rise ~7.0%, adjusted for asset sales, in 4Q17 compared to 4Q16. This exit-to-exit rise in oil production in 4Q17 is expected to be ~10.0% higher than 4Q16.

Debt management will remain a key goal for Chesapeake Energy. The company is aiming to achieve a net-debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 2.0x by 2020 and retire debt of $2.0 billion–$3.0 billion.

You can read more about Chesapeake Energy in CHK Survived the Odds in 2016, but Can Investors Relax Now?


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