When I last weighed in on Chesapeake Energy (NYSE:CHK), I didn’t see anything positive on the horizon for CHK stock investors. I wrote, “In my honest opinion you can find better stocks elsewhere. Chesapeake wont’ recover.”
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That was on March 2, as the energy stock traded at just 27 cents. It’s now at 19 cents, which isn’t doing anything to convince me that Chesapeake can survive the year. Granted, it hired restructuring advisers Kirkland & Ellis LLP to help the company. However, “CHK’s massive $9 billion in debt will likely not be able to be handled by the company in 2021,” as highlighted by InvestorPlace contributor, Mark R. Hake CFA. Couple that with low energy prices, and it looks like the company is headed to bankruptcy.
Worse, shareholders will vote on April 13 to approve a reverse stock split that could come in anywhere from 1:50 to 1:200. However, all this will do is prop up the stock price to ensure it can keep its listing on the New York Stock Exchange (for now). It won’t change the already damaged outlook for the company.
As I noted on March 2, you can find better stocks elsewhere. Chesapeake doesn’t look like it’s coming back.
Analysts are Bearish on Chesapeake Energy
Morgan Stanley for example, says Chesapeake Energy is one of the companies at greatest risk of default over the near term, “meaning in less than a year.”
“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,” added OilPrice contributor Alex Kimani.
Worse, a majority of analysts have a sell rating on the stock with a price target of 34 cents. Coupled with a sizable downturn in the energy market, CHK stock is heading to $0, worst-case.
It’s Best to Stay Far Away from CHK Stock
Cuts to global economic growth and energy supply/demand issues on the heels of the novel coronavirus, and the Russia-Saudi oil war won’t help the stock either.
Earnings have been disastrous, too. In fact, in recent weeks, the energy company posted a net loss of $346 million, or 18 cents, as compared to net income of $576 million, or 57 cents a share a year earlier. Excluding non-recurring items, the adjusted loss per share was 4 cents, which did beat forecasts for a loss of 6 cents. Revenue also pulled back 31% to $1.93 billion, which missed estimates for $2.02 billion. On top of that, oil, natural gas and natural gas liquids revenue plummeted 44% to $969 million.
In short, Chesapeake just isn’t worth the investment.
It can attempt to prop up its stock with a reverse stock split, but with $9 billion in debt, and a crippled energy market, Chesapeake Energy won’t survive the year. In all honesty, you can find better opportunities elsewhere. Shares of CHK stock are heading to zero.
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.
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