Chesapeake Energy’s Poor Performance in 2017: What’s to Blame?



The second-worst performer of 2017

In 2017, Chesapeake Energy (CHK) turned out to be the second-worst-performing energy stock of the Energy Select Sector SPDR ETF (XLE). CHK is a natural gas (UGAZ) (DGAZ) producer with operations across the US resource plays. In 2017, it fell ~44% and significantly underperformed XLE by a wide margin. XLE fell ~3% in 2017.

In 2017, Chesapeake Energy also underperformed the First Trust ISE-Revere Natural Gas ETF (FCG), which represents an index of stocks across the natural gas exploration and production industry. FCG fell ~9% in 2017.

In comparison, crude oil rose ~12% in 2017, and natural gas fell ~21%. The SPDR S&P 500 ETF (SPY) rose ~19%, and the SPDR Dow Jones Industrial Average ETF (DIA) rose ~25% in 2017.

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Chesapeake Energy’s revenues and earnings

In the first nine months of 2017, Chesapeake Energy reported revenues of ~$7 billion. That’s ~19% higher than ~$5.9 billion in the same period of 2016. CHK reported an increase in its net profit to ~$616 million in the first nine months of 2017 from a loss of ~$4.1 billion in the first nine months of 2016.

Chesapeake Energy is suffering from a high debt load and negative free cash flows. Despite ~$755 million in divestitures last year, its total debt increased from ~$9.7 billion in 3Q16 to ~$9.9 billion in 3Q17. Its total common shares outstanding increased from ~776 million in 2Q16 to ~906 million in 3Q17.

Chesapeake Energy will announce its 4Q17 and 2017 earnings on February 22, 2018, before the market opens.

Next, we’ll compare the 2017 returns for Apache (APA) with the broader market and energy commodities and analyze its fundamental metrics.


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