In 2019, Chesapeake Energy (NYSE:CHK) declined by 60.7%, compared to Energy Select Sector SPDR ETF’s (NYSEARCA:XLE) 7.8% rise. Weaker energy commodities prices and the weak outlook provided by management dragged stock prices. However, US-Iran tensions could give a new lifeline to CHK in 2020.
CHK’s peers Southwestern Energy (NYSE:SWN) and Range Resources (NYSE:RRC) declined 29% and 49.3% last year, respectively. In Q3 2019, CHK, SWN, and RRC operated with production mixes over 60% in natural gas. In 2019, Cabot Oil and Gas (NYSE:COG) fell 22.1% and outperformed its natural gas-weighted peers, including CHK.
First half better than the second half
In the first half of 2019, Chesapeake Energy rose as high as $3.57. At that point, WTI crude oil prices were also above $65 per barrel.
In March 2019, analysts’ mean target price for CHK was $3.1 compared to $1 this month. Yesterday, CHK closed at $0.78. Also, in March, around 14% of the analysts tracking CHK recommended a “buy.” Now, approximately 6% of analysts rate it a “buy,” based on Reuters data.
Currently, 71% of the analysts tracking CHK recommend a “hold,” while the remaining recommend a “sell.” Analysts’ mean price targets suggest a 21.6% upside in 2020.
Chesapeake’s Q4 2019 earnings
Analysts’ consensus estimates projected CHK’s Q4 2019 adjusted EPS (earnings per share) at -6 cents. In Q3 2019, CHK’s EPS was at -11 cents.
In Q4 2019, crude oil active futures and natural gas futures averaged $56.87 per barrel and $2.4 per MMBtu (million British Thermal Units). On a quarter-over-quarter basis, oil and natural gas prices rose just 0.4% and 4%, respectively. The movement in energy commodities’ prices is important for CHK’s financials.
If the actual EPS were negative, then it would be a fourth consecutive quarter of negative EPS for CHK. Between Q2 2015 and Q2 2016, CHK reported negative EPS. Warmer weather dragged natural gas prices in the 2015-16 winter season. Also, oil prices plunged between 2015 and 2016.
Q1 2020 outlook
The 2019-20 winter season could trouble CHK. But the additional 50,000 barrels per day oil output cut by “OPEC+” could push oil prices up. In 2019, CHK share prices correlated 55.3% with oil. Chesapeake’s correlation with natural gas prices was at 25.8%. Also, any upside in oil prices because of the US-Iran conflict could drive CHK.
CHK’s technicals and price target
Yesterday, CHK closed 3.7% and 5.7% below the 20- and 50-DMA (day moving average), respectively. CHK was also 30.2% and 52.2% below the 100-DMA, and 200-DMA, respectively. CHK share prices being below key moving averages suggests further weakness. The 20-DMA at $0.9 levels is the immediate resistance zone for Chesapeake.
Yesterday, CHK’s implied volatility was at 120.4%, 2% above the 15-day average. CHK could close between $0.66 and $0.90 between January 9 and January 15, based on the implied volatility. For an explanation of this price model, see Oil Prices: Implied Volatility Suggests Upside Is Intact.