Chesapeake Energy (CHK) Stock Still Solid Despite Storms

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With the pros still assessing the scope — and cost — of the damage that hurricane Harvey dished out on the eastern coast of Texas and southern Louisiana, it’s tough to say where Chesapeake Energy Corp. (NYSE:CHK) will end up landing. The headlines, however, don’t bode well for CHK stock.

chk stockBut what if investors overestimate how long Chesapeake Energy will face its Harvey headwinds?

Now’s the time to take a deep breath, step back, and look at CHK stock through a bigger-picture lens. Chesapeake Energy is still on a recovery path to better results. Harvey is just a temporary stumbling block within an otherwise compelling turnaround story.

Chesapeake Energy Mostly Sidestepped Harvey

Chesapeake’s properties weren’t within the path of Harvey’s destruction. CHK’s only site in Texas is at Eagle Ford — well out of Harvey’s devastating reach — and its only operation in Louisiana is in Haynesville, which is about 300 miles from the Gulf Coast and also mostly out of harm’s way.

Goldman Sachs (NYSE:GS) fears the industry’s shutdowns along the Gulf Coast — where 16% of the country’s oil refining is done — could shave as much as 20 basis points off of the third quarter’s GDP growth rate.

That’s a headwind in spite of the fact that insurance payouts will put money back into the economy.

It’s also a headwind the oil and gas industry has survived plenty of times before. It happened following Katrina in 2005, Ike in 2008, Georges in 1998, etc. The industry always finds a way to dig itself out, figuratively and literally.

It’s also worth noting that Chesapeake Energy is more of a gas play and less of a crude oil name than rivals like Exxon Mobil Corp. (NYSE:XOM) and Valero Energy Corp.(NYSE:VLO), both of which were directly and significantly impacted by Harvey. Exxon Mobil’s Baytown oil refinery, which is the country’s second biggest at 584,000 barrels per day, was shut down, while Valero’s Port Arthur, Three Rivers and Corpus Christi sites were also temporarily shuttered.

Natural gas doesn’t need as much processing as crude oil does though, and as such, much of Chesapeake Energy’s operation wasn’t impacted by the storm.

Natural gas also uses a different pipeline system than crude oil does, and though east Texas is still a critical natural gas hub, it’s not the only one.

Still, avoiding the brunt of a hurricane is one thing. Thriving in its wake is another. Is CHK stock worth owning, with or without Harvey? Something I said back in May following a so-so quarterly report is worth repeating now:

“Where the company is now isn’t where it’s apt to be in the foreseeable future, and investors can’t get too distracted by one quarter – especially a quarter that’s in the midst of a recovery effort. SunTrust Robinson Humphrey agreed Chesapeake Energy is positioning for a strong end to 2017, on the heels of paying down some of its debt and ramping up its liquidity.”

That debt-repayment effort and liquidity endeavor hasn’t changed in the meantime. Though results are still going to be hot and cold going forward, the company widened profits in the subsequent quarter on a healthy year-over-year improvement in revenue.

Harvey didn’t alter the bigger-picture undertow. The only thing that’s changed is the price of CHK stock. It’s now around $3.80, down from $5.55 then.

Bottom Line for CHK Stock

Harvey will be a fading memory for most (though not all) in just a few months, if not weeks. Once the dust settles, not only will oil and gas start to flow normally again, the market will realize that Chesapeake Energy was one of the industry’s least affected names.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/chesapeake-energy-chk-stock-unfairly-impacted-by-harvey-related-fears/.

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