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Chesapeake Energy Stock: What’s Holding It Down?

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Nov. 20 2020, Updated 1:33 p.m. ET

Chesapeake Energy stock

Chesapeake Energy (CHK) stock has been showing a mostly consistent downtrend since the beginning of this year. Its stock has fallen a significant ~26.0% since the beginning of 2017. As we can see in the image below, CHK’s stock has been mirroring natural gas prices (UNG) (UGAZ) for the most part. Natural gas prices have fallen ~10.0% since the beginning of the year.

CHK has also underperformed the Energy Select Sector SPDR ETF (XLE), which has returned approximately -8% year-to-date. The S&P 500 ETF (SPY) has returned ~5.5% during the same period.

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Why CHK stock hasn’t been rising

As we can see in the image above, natural gas prices have been recovering and rising since late February. CHK stock hasn’t followed suit, most likely due to its weaker-than-expected 4Q16 earnings.

Also, lower natural gas prices compared to price levels at the beginning of the year could have made investors wary, especially with CHK’s plans to boost spending this year. To finance this spending, CHK will need sufficient cash flows. If it takes on more debt to fund its spending, it might not please investors. As we know, CHK continues to struggle under a huge debt load despite the various efforts it has made in previous years.

One of Chesapeake Energy’s significant achievements in 2016 was 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.

Debt management will remain a key goal for Chesapeake Energy in 2017. 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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