A recently ill-looking market hit by the coronavirus is showing improved signs of life this week. But when it comes to Chesapeake Energy (NYSE:CHK), bearish investors are still in control of overseeing last rites in CHK stock. Let me explain.
If investors believe Chesapeake Energy’s ability to thrive is all about the price of natural gas and oil, they’re turning an obvious blind eye to the once-mighty energy giant’s mountain of debt.
Importantly, the broader market’s challenging correction, and one so closely tied to the coronavirus, isn’t what’s really troubling Chesapeake Energy’s very existence.
More Problems for Chesapeake Stock
To be clear, the correlation of Chesapeake’s decline in share price alongside a hard hit energy market has been present the past few weeks as the coronavirus has grown. And yes, the coronavirus’ impact on the oil and gas industry is real and significant. Just look at heavyweight Chevron’s (NYSE:CVX) stock slumping to three-year lows or worse, ExxonMobil (NYSE:XOM) tumble towards ten-year lows.
As I wrote back in January, unlike those industry giants CHK stock was already in a very different position off and on the price chart. And not only is that a problem, nothing has changed. The crux in Chesapeake’s latest miserable chapter as a publicly-traded company rests squarely on the company’s obligations of nearly $9 billion at the end of 2019. That’s it, but it’s a very ominous ‘it.’
Bottom-line, management has done a good job of keeping Chesapeake out of bankruptcy in the short-term. But as InvestorPlace’s Will Ashworth notes, the associated costs which includes paying up to 11.5% on renegotiated debt isn’t pretty.
What’s more, the company still faces more than half of today’s mountainous obligation to be paid over the next four years. And along with hefty interest payments in excess of $3 billion, that’s more than simply a large and forgivable burden.
CHK Stock Price Monthly Chart
Source: Charts by TradingView
On the price chart shares of CHK remain a problem for investors other than bearish shorts dutifully trending shares towards a last rites ceremony on the price chart. As speculated on back in January, Chesapeake Energy’s management has announced plans for a reverse split. But while the move will keep shares up-to-snuff by listing standards, it’s not a fix for a broken stock. In fact, far from it.
The manipulation of share price to appease regulators could actually add fuel to the fire and pressure on CHK stock. It’s this strategist’s view as Chesapeake Energy hits all-time-lows, but still ‘enjoys’ a market cap of $935 million, a reverse split will prompt the interest of other bears unwilling to short low-priced stocks as a rule and who are now being offered an RSVP to short CHK stock deeper into the ground.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
