How Did Chesapeake Energy Perform?



Cheap stocks in the S&P 500

We will discuss the top 18 cheapest stocks in the S&P 500 for 2018 based on their forward PE ratios in a three-part series. This series will discuss the top five stocks: Chesapeake Energy (CHK), Micron Technology (MU), Southwestern Energy (SWN), Western Digital (WDC), and Xerox (XRX).


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What triggered the revenue growth in 9M17?

Chesapeake Energy’s (CHK) 2016 revenue fell 38% in 2016 before rising 19% in the first nine months of 2017 (or 9M17). Lower price and sales volumes of oil, natural gas, and natural gas liquids (or NGLs) drove the decline in 2016. The exploration, production and marketing, and gathering and compression segments drove the decline in 2016. In 9M17, every segment discussed above drove the growth. The growth in price offset the impact of lower sales volumes in 9M17.

What led to the positive diluted EPS in 9M17?

Gross margin went down by 81% in 2016 before gaining 420% in 9M17. Operating expenses decreased 77% and 70% in 2016 and 9M17, respectively, which was due to lower asset impairment in 9M17. As a result, the loss from operations reduced by 77% in 2016. The company also recorded positive income from operations in 9M17 unlike in 9M16. Other expense decreased in 2016 and increased in 9M17. This was due to other income being unable to offset the impact of an increase in interest expenses in 9M17 unlike in 2016. Net loss reduced by 74% and 534% in 2016 and 9M17, respectively. As a result, the company saw positive net income in 9M17. Diluted loss per share reduced by 75% in 2016 and by 453% in 9M17. As a result, positive diluted EPS was recorded in 9M17. The company’s free cash flow has been decreasing since 2013 before turning negative in 2016.

The Guggenheim S&P Equal Weight Energy (RYE) has exposure to CHK. It has a PE of 21.4x and a dividend yield of 2.7%. The PowerShares Wilderhill Progressive Energy (PUW) has exposure to CHK. It has a PE of 22.1x and dividend yield of 0.7%. We’ll discuss CHK’s performance versus its peers and broad indexes like the S&P 500 (SPX-INDEX) (SPY), the Dow Jones Industrial Average (DJIA-INDEX) (DIA), and the NASDAQ Composite (COMP-INDEX) (ONEQ) in the next part.


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