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Chesapeake (CHK) Down 14.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Chesapeake Energy (CHK - Free Report) . Shares have lost about 14.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Chesapeake due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Chesapeake Q3 Earnings and Revenues Beats Estimates

Chesapeake Energy Corporation reported third-quarter 2018 earnings per share (excluding special items) of 19 cents, which beat the Zacks Consensus Estimate of 16 cents and improved from the year-ago quarter’s figure of 12 cents.

Total revenues amounted to $1,199 million, up from $979 million in the year-ago quarter. The top line also surpassed the Zacks Consensus Estimate of $1,160 million.

Higher oil equivalent price realizations primarily led to strong third-quarter 2018 results. Despite impressive quarterly results, the stock declined more than 16% in pre-trading hours, following its $4 billion acquisition deal. The assumption of significant debt, as a part of the agreement, might have dented investors’ optimism.  

Wildhorse Acquisition

In a separate announcement, Chesapeake Energy has agreed to acquire Wildhorse Resource Development Corp. in exchange for cash and stock, valued at $3 billion. The company will also assume $930 million net debt of Wildhorse. Hence, the total transaction has been valued at almost $4 billion.

Chesapeake Energy is expected to increase its exposure in the Eagle Ford Shale, owing to the acquisition.

Operational Performance

Chesapeake Energy’s production in the reported quarter was approximately 50 million barrels of oil equivalent (MMBoe), flat year over year. Production comprised approximately 8 million barrels (MMbbls) of oil (flat year over year), 215 billion cubic feet (bcf) of natural gas (down almost 2% year over year) and 5 MMbbls of natural gas liquids (NGL) (flat year over year).

Oil equivalent realized price — exclusive of unrealized gains (losses) on derivatives — was $24.44 per barrel of oil equivalent compared with $21.67 in the year-ago quarter.

Total capital expenditure fell to $619 million from $692 million in the third quarter of 2017.

On the cost front, quarterly production expenses declined more than 11% year over year to $2.68 per Boe.

Financials

At the end of the quarter, Chesapeake Energy had cash balance of $4 million. Net long-term debt was $9,380 million.

Guidance

The company maintained production guidance for 2018 in the range of 494,000-524,000 Boe per day. Moreover, the company reiterated capital budget projection at $2,000-$2,300 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Chesapeake has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Chesapeake has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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