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Chesapeake (CHK) Down 28.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Chesapeake Energy (CHK - Free Report) . Shares have lost about 28.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

Chesapeake Q1 Earnings Miss Estimates on Lower Output

Chesapeake Energyreported first-quarter 2019 earnings per share (excluding special items) of 14 cents, missing the Zacks Consensus Estimate by a penny. The bottom line also declined from the year-ago quarter’s 34 cents.

Operating revenues amounted to $929 million, down from $1,243 million in the year-ago quarter. The top line also missed the Zacks Consensus Estimate of $1,094 million.

The weak first-quarter 2019 results were affected by lower production volumes and a decline in natural gas prices.

Operational Performance

Chesapeake’s production in the reported quarter was approximately 44 million barrels of oil equivalent (MMBoe), down from 50 MMBoe a year ago. The total production comprised 10 million barrels (MMbbls) of oil (up 25% year over year), 182 billion cubic feet of natural gas (down 18%) and 4 MMbbls of natural gas liquids (NGLs) (down 20%).

Oil equivalent realized price — exclusive of unrealized gains (losses) on derivatives — was $27.62 per barrel of oil equivalent (Boe), marginally increasing from $27.31 in the year-ago quarter. Oil price rose to $58.86 per barrel from $56.89 in the year-ago period. Natural gas prices declined to $3.07 per thousand cubic feet from the year-ago level of $3.49. Average sales price of NGLs was recorded at $20.03 per barrel in the quarter compared with $25.36 in the year-ago period.

Operating Expenses

Total operating costs in the first quarter declined to $2,378 million from $2,482 million in the prior-year period. However, quarterly production expenses per Boe increased to $3.02 from $2.94 in the year-ago period.

Capital Expenditure

Total capital expenditure increased to $559 million in the first quarter from $543 million in the year-ago period, primarily due to rise in drilling and completion capital spending.

Financials

At the end of the quarter, Chesapeake had cash balance of $8 million. Net long-term debt was $9,167 million.

Guidance

The company issued its production guidance for 2019 in the range of 475,000-505,000 Boe per day. Moreover, the company reduced its total capital budget for 2019 from $2,300-$2,500 million to $2,105-$2,305 million. To optimize its portfolio, the company has shifted part of its planned capital budget from the Marcellus Shale and Mid-Continent assets to the Powder River Basin area, where output is expected to surge in the second half of the year.

The company intends to change its production volume mix via producing more oil. At the end of this year, the company intends to reach oil mix of 26% from the current level of 22.7%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -121.18% due to these changes.

VGM Scores

At this time, Chesapeake has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Chesapeake has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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