With earnings right around the corner, a few die-hard investors might think that there’s hope for Chesapeake Energy (NYSE:CHK) stock to make some sort of wild comeback. While it would certainly make for a heartwarming story, sadly I don’t think there’s any hope left.
I’ve written about stock several times in the past and the reasons have mostly been due to glum headlines about its future.
In fact, the last time I wrote about it, on April 9, the energy stock traded at just 19 cents. CHK stock exploded to $31 a share a few days after., but that was mostly an illusion.
After all, the leap came after a 200:1 reverse split, where for every 200 shares you hold, you now have one. This was all done in an effort to prop up its share price, so it could maintain residency on the New York Stock Exchange. Now, at the start of May, it’s even lower than the April 9 price, trading around 15 cents per share.
Unfortunately, it appears I was right about the demise of Chesapeake Energy.
Chesapeake Energy Plunges on Reports of Bankruptcy Filing
Thanks to high levels of debt, and decimated oil and gas prices, Chesapeake Energy is preparing to file for bankruptcy. According to a report by Reuters, the company has “held discussions with creditors about a possible loan that would aid operations while it navigates bankruptcy proceedings … The loan could total roughly $1 billion, though its size remains in flux.”
The writing has been on the wall for CHK stock’s demise for quite some time. If you paid attention to past arguments against the stock, this should have been obvious.
For example, OilPrice contributor Alex Kimani’s assertion that “Chesapeake — the poster-child of shale investments gone sour — borrowed heavily to finance an aggressive expansion of its shale projects. But lately, the company has been running on fumes, teetering on the brink of bankruptcy under a mountain of debt that it’s unable to repay thanks to energy prices remaining stubbornly low.”
Breaking things down a bit further, the company has $9 billion in debt. It owes toward a $136 million debt obligation in early July 2020, and a $192 million obligation in August 2020, which it may not be able to pay. It’s done.
There’s nothing left to get excited about with CHK stock, despite what the few remaining bulls might claim.
Chesapeake Energy Will Be Pushing Up Daisies Soon
Thanks to the novel coronavirus, economic growth has stalled. Worse, there’s far too much oil supply, and no demand. There’s also far too much natural gas supply. Aside from Chesapeake Energy’s debt load, none of this will end well for the company.
On top of that, earnings are a mess. In Feb 2020, it reported a net loss of $346 million, or 18 cents. A year ago, it posted net income of $576 million, or 57 cents a share. Once we exclude non-recurring items, adjusted earnings-per-share was 4 cents, which did manage to beat estimates for 6 cents. Revenue fell 31% to $1.93 billion.
There’s nothing to save here. Chesapeake Energy will more than likely file for bankruptcy. It had a good run over the years, but its time has come.
Making matters worse, Moody’s downgraded the company’s senior unsecured debt to a “C” rating, “citing the company’s ‘untenable capital structure’ and the ongoing oil crash as increasing the likelihood that Chesapeake would default on its debt,” as noted by Motley Fool contributor Jason Hall.
Again, there’s little reason to invest in CHK stock at the moment. You can find much better opportunities in the market. With a 200:1 reverse stock split, unmanageable debt and decimated oil and natural gas prices, Chesapeake Energy may not survive. In my opinion, it’s going to bankruptcy, as I’ve argued in the past.
It’s nothing more than a slow motion train wreck at this point. Move on.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, he did not hold a position in any of the aforementioned securities.
