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Is it Time to Buy Chesapeake Energy Corp. (CHK) Stock?

Zacks Premium Research
Updated

Chesapeake Energy Corp. CHK focuses on the development, exploration, acquisition and production of onshore natural gas and oil reserves.  Of course, the company has a lot of exposure to low oil prices, which makes the company a risky bet.  There is a glut of the commodity in the market, which continues to threaten oil prices as we progress through the year.  This could result in lower revenue levels for Chesapeake.

CHK has some hurdles to overcome.  The company is significantly leveraged, with debt-to-capital north of 80%.  To put this into perspective, the average debt-to-capital in the US E&P market is about 47.5%.  Chesapeake also has a current ratio of 0.67, so it may have to raise more capital in order to cover its liabilities over the short term.

While Chesapeake has some obstacles to address, its earnings report tomorrow could provide a silver lining for the company.  Should you buy its stock ahead of earnings? Consider these earnings related statistics.

In the last two months, earnings estimate revisions have been mixed for CHK.  For this quarter, five analysts revised their estimates upwards, while six made negative revisions to their estimates.  Our EPS consensus estimate for this quarter has changed over the last 30 days, going from -$0.15 to -$0.11.  In this same time frame, our fiscal year consensus has moved from -$0.57 to -$0.42. 

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The positive movement in our consensus is great news, and this complements Chesapeake’s track record with regards to surpassing our EPS consensus.  The company has actually topped our expectations in each of the last four quarters.  To observe Chesapeake’s track record with our consensus over the years, take a look at the chart below.

Bottom Line:

Chesapeake’s trading volume has spiked multiple times in 2016, but that doesn’t mean you should join the bandwagon.  Most of the earnings related statistics look optimistic, but one key aspect of earnings which doesn’t add up is the fact that analysts are divided with regards to the direction in which they are revising their estimates.  

The stock is risky enough with its exposure to oil, so it probably won’t be beneficial to take another risk by buying this stock when there is discord amongst analysts.  Chesapeake is a Zacks Rank #3 (Hold), and it releases its earnings tomorrow before the opening bell.

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CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
 
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Zacks Investment Research