Chesapeake Energy (CHK) is scheduled to report its second-quarter earnings on August 6. Analysts expect the loss to widen on a sequential basis in the second quarter. However, if the actual earnings are below the expected loss, we might see a sell-off in the stock.
Analysts cut Chesapeake Energy’s target price
On Monday, Raymond James reduced the target price on Chesapeake Energy stock by 33.3% to $3. Early in July, Jefferies, Goldman Sachs, and Suntrust Robinson reduced their target prices on the stock. On July 18, Susquehanna reduced its target price on the stock by $0.5 to $3.5. The lower outlook for natural gas and oil prices might be behind the lower target prices.
For Chesapeake Energy, analysts’ mean target price is ~$2.55, which implies a potential upside of ~40.9% based on the last closing price. Among the 25 analysts tracking Chesapeake Energy, 40% recommended a “sell” or “strong sell.” None of the analysts recommended a “strong buy” on the stock.
Implied volatility and short interest
Apart from analysts’ price reduction, Chesapeake Energy’s implied volatility rose to 112.7% on July 25—the highest level since late December 2018. The rise in the implied volatility suggests that the market expects large movement in the stock prices. As we discussed earlier, due to the current circumstances, there are more chances that the movement could be downward. However, any surprise in the earnings could mitigate the risk of downside in the stock prices.
Based on the implied volatility of 97% in the last trading session, Chesapeake Energy’s stock prices will likely close between $1.60 and $2.02 in the next five trading sessions. The price range has a probability of 68%. The implied volatility and high short interest in the stock could reflect the market’s expectation of a large fall. In July, the company’s short interest rose to the highest since late February.
Chesapeake Energy’s price performance
On a year-to-date basis, Chesapeake Energy’s stock prices have fallen 13.8%. Most of the fall came after the first-quarter earnings results on May 8. The company reported a net loss of 2 cents per share compared to analysts’ consensus estimate for earnings of 14 cents per share. So far this year, the company has the second-lowest decline among natural gas–weighted stocks after Cabot Oil & Gas (COG). Cabot Oil & Gas’s premium pricing might have helped it outperform the 24% decline in Henry Hub natural gas prices. Notably, a rise of 29% in WTI crude oil active futures could be important for Chesapeake Energy’s stock prices.