Are You Going to Bet on Chesapeake Energy Stock in 2018?



Chesapeake Energy stock

Chesapeake Energy (CHK) stock took a slight dip last week, falling 7.7% in the week ended January 19 compared to the week ended January 12. The decline was likely due to the dip in crude oil prices (USO)(UCO).

In the week ended January 19, crude oil prices fell ~1.4% while natural gas prices (UNG)(UGAZ) fell ~0.5%.

Year-over-year, crude oil prices have risen 21.10% while natural gas prices are still 4.3% lower compared to a year ago.

On a year-over-year basis, CHK stock has declined ~43%. The energy sector benchmark ETF, the Energy Select Sector SPDR ETF (XLE), rose 0.28% year-over-year. In comparison, the broader market S&P 500 SPDR ETF (SPY)(SPX-INDEX) rose ~24.5%.

In 2017, CHK had been weighed down by lower oil prices in 1H17, weak natural gas prices throughout the year, and a heavy debt burden.

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What to expect for CHK in 2018

While oil prices have improved, as we saw above, debt remains a concern. One of the key strategies CHK will implement to address this problem is asset sales. CHK management has announced a goal of $2 billion–$3 billion in asset sales over the next several years.

Plus, CHK believes it could achieve free cash flow neutrality in 2018 at $50 oil prices and $3 natural gas prices.

Even as CHK has been aiming for oil-focused growth, a sustained increase in oil and natural gas prices in 2018 would also benefit the stock.


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