What to Do With Chesapeake Energy (NYSE: CHK)

What to Do With Chesapeake Energy (NYSE: CHK)
What to Do With Chesapeake Energy (NYSE: CHK)

Miami, FL – October 21, 2018 (EmergingGrowth.com NewsWire) — EmergingGrowth.com, a leading independent small cap media portal with an extensive history of providing unparalleled content for the Emerging Growth markets and companies, reports on Chesapeake Energy Corporation (NYSE: CHK).

Ahead of the quarterlyresults announcement, investors are wondering as to what to do with Chesapeake Energy Corporation (NYSE: CHK) shares, over concern on its operating margin, which is lower than the industry and the sector despite enjoying a strong gross margin. The stock has also delivered more than 20 percent returns in the last one-year period.

Key Metrics

There are some favorable, as well as, unfavorable key metrics as far as Chesapeake Energy is concerned. For instance, in the trailing twelve-month (TTM) period, profit earnings ratio remained at 9.22 percent whereas the industry and the sector enjoyed 13.67 percent and 11.91 percent respectively. Similarly, in the last five-year period, the high PE was 35.36 percent in comparison with 168.17 percent and 41.86 percent respectively for the industry and the sector.

In the same way, there is a positivecatalyst from price to sales for the same TTM period. The energy firm is enjoying 0.46 percent relative to 95.77 percent and 12.95 percent respectively for the industry and the sector. Similarly, price to cash flow ratio remained at 2.62 percent compared to 5.64 percent and 7.54 percent respectively. In respect of gross margin, it is 76.86 percent for the TTM and 78.12 percent for the five-yearaverage. This is sharply higher than the industry’s 43.61 percent and 42.30 percent for the same periods. Similarly, the sector could achieve only 31.44 percent and 26.92 percent respectively.

Operating Margin

There is no doubt that these catalysts are positive considering that they are lower than the industry and sector. This would suggest that there is enough scope for upside potential in the stock. At the same time, there are also concerns. For instance, EBITDmargin for the TTM is 21.5 percent and 23.29 percent for the TTM and the five-yearaverage. The industry and the sector are enjoying a five-year average of 40.43 percent and 22.79 percent respectively. Similarly, operating margin of 9.3 percent is weaker than the sector’s 15.19 percent and industry’s 30.96 percent respectively. For the five year average, Chesapeake suffered a negative of 22.77 percent whereas the sector and industry delivered a positivepercentage of 6.69 percent and 12.62 percent respectively.

These are unfavorable catalysts and could impact the upward potential since the stock has already delivered 57.38 percent for the first half and 22.14 percent in the last one year period. Aside from this, there are more downgrades from brokerages and only one upgrade, which is tooneutral from underperform. The company’s positive earnings surprise was also missing the last quarter. These apart, there iscaution from the oil and gas sector where the price could face some pressures since it has been increasing over a period and the winter session is aroundthe corner.

Rivals’ Margin

As far as Chesapeake Energy’s rivals are concerned, it does not look great. For instance, Southwestern Energy Co (NYSE: SWN), the company is enjoying a grossmargin of 67.41 percent and 74.09 percent for the TTM and five-yearaverage respectively. In respect of operating margin, the company suffered a negative 7.05 percent while the industry and sector’s negative was 10.85 percent and 1.37 percent respectively.

Similarly, Devon Energy Corp (NYSE: DVN) is enjoying the highest gross margin of 81.07 percent and 83.22 percent for the TTM and five-yearaverage respectively. However, its operating margin is a negative 4.51 percent for the TTM and 19.13 percent for the five-yearaverage.


Though the current situation might not prompt anyone to buy the stock of Chesapeake Energy, it is also not the right time to sell it. Any action could be considered after the results are out. Until then, it is better to hold.

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