Why Chesapeake Stock Rose Last Week



Chesapeake Energy stock

Chesapeake Energy (CHK) stock rose 9.7% in the week ended December 22, compared to the previous week ended December 15. However, since the beginning of this year, CHK stock has fallen ~44.4%.

Much of the increase last week came from the passing of the US tax bill on December 20. Several US stocks—including CHK—rose the next day. CHK rose ~1.6%.

What’s been pushing CHK?

Crude oil prices (USO) are trading at their highest levels this year. But as the year comes to a close, natural gas prices (UNG)—which also affect CHK stock—haven’t done that well. Since the beginning of this year, oil prices have increased 11.6%. They’re currently trading around $58.4 per barrel. Natural gas prices are down ~19.5% since the beginning of the year. They’re currently trading around $2.679 per MMBtu (million British thermal units).

CHK’s debt levels and weak cash flow haven’t helped. The company’s debt currently stands at ~10 billion against a market capitalization of $3.4 billion. In comparison, CHK generated operating cash flow of only $337 million in 3Q17.

How could 2018 differ?

With oil prices showing improvement since September, a sustained increase in oil prices in the new year would benefit the stock given as the company has been aiming for oil-focused growth. Of course, natural gas prices would need to improve too, and a proposed US LNG export projects could help natural gas prices next year. Improved cash flows via asset sales could also be a catalyst for CHK. For the next several years, Chesapeake’s management has announced a goal of $2 billion–$3 billion in asset sales.

Year-to-date performance

As we note in the graph above, Chesapeake stock has performed poorly compared to the broader energy industry (XLE), which has fallen ~5.51% this year. Chesapeake stock and XLE have both underperformed the broader market (SPY)(SPX-INDEX) by a significant margin. SPY has risen ~18.77% since the beginning of the year.

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