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What's in Store for Chesapeake (CHK) This Earnings Season?
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Chesapeake Energy Corporation (CHK - Free Report) is expected to report second-quarter 2016 earnings on Aug 4.
Last quarter, the company delivered a positive earnings surprise of 9.09%. Moreover, Chesapeake posted an average positive earnings surprise of 21.21% over the last four quarters. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
Natural gas has improved 85% from the 17-year low the commodity tumbled to in March. Given that Chesapeake is one of the most gas-weighted Exploration and Production (E&P) companies, it is poised for significant gains and share price appreciation.
The company foresees its cost-cut efforts bearing fruit as well as envisions remarkable efficiency gains in its core operating areas. Chesapeake has the deepest inventory in the preeminent part of the Utica as well as some of the finest locations in the Eagle Ford and Marcellus. These should help the company achieve its growth target.
Chesapeake is on track to reduce long-term debt by monetizing its assets and cutting lease-hold spending. This monetization initiative is mainly aimed to cope with the mounting debt level as well as to fill the funding gap for its 2016 expenditures that resulted from the volatility in natural gas prices.
However, the company’s balance sheet is still more leveraged than its peers in spite of its ongoing asset monetization initiatives working well. At the end of the first quarter, the debt balance was $9.4 billion. In the to-be-reported quarter, the company retired its 3.25% Senior Notes due Mar 15, 2016, and repurchased approximately $282 million of debt due in 2017 at an average discount of approximately 39%.
Chesapeake’s oil exposure, though limited, further increases bearishness on the stock as the commodity has plunged massively since Jun 2014. With crude prices anticipated to remain weak throughout 2016, the company’s financials are likely to remain pressed.
Earnings Whispers
Our proven model does not conclusively show that Chesapeake is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 9 cents.
Zacks Rank: Chesapeake currently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, an Earnings ESP of 0.00% makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies from the same space, which according to our model, have the right combination of elements to post an earnings beat this quarter:
SM Energy (SM - Free Report) has an Earnings ESP of +2.86% and a Zacks Rank #2.
Cimarex Energy has an Earnings ESP of +200.00% and a Zacks Rank #2.
Rowan Companies plc has an Earnings ESP of +2.74% and a Zacks Rank #3.
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What's in Store for Chesapeake (CHK) This Earnings Season?
Chesapeake Energy Corporation (CHK - Free Report) is expected to report second-quarter 2016 earnings on Aug 4.
Last quarter, the company delivered a positive earnings surprise of 9.09%. Moreover, Chesapeake posted an average positive earnings surprise of 21.21% over the last four quarters. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
Natural gas has improved 85% from the 17-year low the commodity tumbled to in March. Given that Chesapeake is one of the most gas-weighted Exploration and Production (E&P) companies, it is poised for significant gains and share price appreciation.
The company foresees its cost-cut efforts bearing fruit as well as envisions remarkable efficiency gains in its core operating areas. Chesapeake has the deepest inventory in the preeminent part of the Utica as well as some of the finest locations in the Eagle Ford and Marcellus. These should help the company achieve its growth target.
CHESAPEAKE ENGY Price and EPS Surprise
CHESAPEAKE ENGY Price and EPS Surprise | CHESAPEAKE ENGY Quote
Chesapeake is on track to reduce long-term debt by monetizing its assets and cutting lease-hold spending. This monetization initiative is mainly aimed to cope with the mounting debt level as well as to fill the funding gap for its 2016 expenditures that resulted from the volatility in natural gas prices.
However, the company’s balance sheet is still more leveraged than its peers in spite of its ongoing asset monetization initiatives working well. At the end of the first quarter, the debt balance was $9.4 billion. In the to-be-reported quarter, the company retired its 3.25% Senior Notes due Mar 15, 2016, and repurchased approximately $282 million of debt due in 2017 at an average discount of approximately 39%.
Chesapeake’s oil exposure, though limited, further increases bearishness on the stock as the commodity has plunged massively since Jun 2014. With crude prices anticipated to remain weak throughout 2016, the company’s financials are likely to remain pressed.
Earnings Whispers
Our proven model does not conclusively show that Chesapeake is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 9 cents.
Zacks Rank: Chesapeake currently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, an Earnings ESP of 0.00% makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies from the same space, which according to our model, have the right combination of elements to post an earnings beat this quarter:
SM Energy (SM - Free Report) has an Earnings ESP of +2.86% and a Zacks Rank #2.
Cimarex Energy has an Earnings ESP of +200.00% and a Zacks Rank #2.
Rowan Companies plc has an Earnings ESP of +2.74% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>