Chesapeake Energy (NYSE:CHK) has been on a roller coaster ride for the past 12 months. The ups and downs of CHK stock price have been driven by fluctuations in fuel prices as well as the company’s struggle to pay down its massive debt load.
Is CHK stock a good buy today? Let’s look at the pros and cons of Chesapeake Energy stock.
Chesapeake is an oil and natural gas exploration and production company; despite its name, it is headquartered in Oklahoma City. In 2017, the company produced 548,000 barrels of oil equivalent per day, of which 73% was natural gas, 16% was petroleum, and 11% was natural gas liquids.
The company has taken investors on a wild ride in recent years. CHK stock price bottomed out around $2 in 2016, amid rumors that it was about to declare bankruptcy. Since then, however, the company has managed to get back in the game, as its revenues have risen steadily.
The biggest problem on Chesapeake’s balance sheet is its nearly $10 billion of debt, which the company had to incur to dig itself out of its hole. Occasionally, rumors fly that Chesapeake has hired a restructuring firm, causing CHK stock to tumble.
But since taking over in 2013, Chesapeake CEO Doug Lawler has made some smart moves that have the potential to put the company back on a truly solid footing. Instead of making hasty acquisitions, Lawler has adopted a more sensible approach, focusing on the most productive wells and exploration sites.
But the inherently volatile nature of fuel prices has made it difficult to plan for the future with any great foresight. Management keeps promising to bring down the punishing debt load, freeing up more cash flow. But the debt is only slightly lower than it was 24 months ago.
Even aside from the debt problem, however, the company’s balance sheet is not in great shape. In Chesapeake’s most recent quarterly report, its EBITDA was $536 million, less than its capital expenditure of $594 million. The market capitalization of CHK stock is close to $4 billion.
Lawler and his team may have been hoping that changes in energy prices would help them, but so far the cavalry has not arrived. Natural gas has stayed under $3 for most of 2018. OPEC keeps threatening to raise prices, but so far there has been no dramatic move upward in oil prices either.
What about the bright side? Chesapeake has been selling off some of its less productive assets, including its recent sale of Utica Shale assets which should generate close to $2 billion for the company over the next two quarters. The transaction will provide CHK with some much-needed cash.
The Bottom Line on CHK Stock
So what is the final verdict on Chesapeake Energy stock? It’s definitely not stable enough for long-term growth investors. But for those who want to use CHK stock as a high-risk, high-reward play, Chesapeake stock could be worth buying because CHK stock price could potentially rise a great deal.
As of this writing, the author did not own any of the stocks discussed in this article.