Chesapeake Energy (NYSE:CHK) is walking its last mile. Since peaking at $2.04 in Sept. 2019, CHK stock has sunk to just 27 cents.
Unfortunately, there’s just not much to get excited about, especially after Goldman Sachs cut its 2020 natural gas outlook to $2.20/MMBtu from $2.50 thanks to the coronavirus.
Not helping, the International Energy Agency (IEA) just cut its view on oil demand growth in 2020 by 365,000 barrels a day to 825,000 (the lowest in nine years).
That’s all weighing on the Chesapeake Energy stock.
Worse, the company is planning for a reverse stock split, as the commodity pricing environment has “further deteriorated,” says MarketWatch contributor Tomi Kilgore. That, coupled with the company’s weak cash position is a stock killer.
In my honest opinion, you can find better stocks elsewhere. Chesapeake Energy won’t recover.
Analyst Concerns
Once heralded as a leader in the U.S shale revolution, Chesapeake has collapsed miserably. Drillers are flooded with excess supply, wiping out billions of market value.
CFRA analyst Paige Meyer for example just reiterated her sell rating after the company’s earnings results. She also cut her stock price target to 30 cents from 50 cents and is concerned over the company’s cash position. Reportedly, the company’s intention to fund the payment of $300 million in notes in 2020, and $290 million in 2021 isn’t likely with inadequate cash flows.
“Our price target on this is zero,” said Sameer Panjwani, director of exploration and production research at Tudor, Pickering, Holt & Co. “Everyone is concerned with the debt load here. You either have to sell assets, which in this market is pretty tough to do, or you have to generate free cash flow, which they’re not doing well in this environment. They’re backed into a corner.”
An Earnings Miss Makes Things Worse
Earlier this week, Chesapeake said it swung to a net loss of $346 million, or 18 cents from net income of $576 million, or 57 cents a share a year earlier.
Excluding non-recurring items, the adjusted loss per share was four cents, which beat forecasts for a loss of six cents. Revenue pulled back 31% to $1.93 billion, which missed estimates for $2.02 billion. Oil, natural gas, and natural gas liquids revenue plummeted 44% to $969 million.
In short, Chesapeake is a slow-motion train wreck that I wouldn’t touch.
The Bottom Line on CHK Stock
Chesapeake has collapsed, as drillers are flooded with excess supply, wiping out billions of market value.
Management is planning a reverse stock split to get its shares up so it won’t be delisted, and Chesapeake’s earnings and cash position are disastrous.
In my opinion, I don’t think shares of Chesapeake Energy will make it through the year. Stay far away from the stock.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
