John Stephenson Chesapeake Energy Corp. CHK-N BUY Mar 05, 2010

He would say that energy in the US would be in the top 3^rd of the sectors from a performance standpoint so far this year. Energy has become very regionalized and you have to look at which region you want to invest in. Some are much higher growth and some are much lower cost. This one is in very prolific regions. Going into the fall, natural gas prices have been firming up. (See Top Picks.)

Great company. This is a gas story. Shale gas is the big game changer in the US. You are going to see cooler, wetter weather than average and this company is well-positioned.

This is primarily a gas play. It is hard to get very bullish about gas prices still. There is still a lot of excess supply. Because it is coming off the shale, a lot of it is getting burned off too. Also, has a stretched balance sheet.

Has had a lot of issues in the past. She is not very much in favour of gas players right now. It is a challenging time to be a gas investor, unless you believe that we are going to get significant LNG exports or are going to have a very hot summer. There are better opportunities for gas plays. If you own, consider switching into another gas levered play, such as Advantage (AAV-T).

His model price on this is $0.86. This is going to lose money this year and $0.28 in 2016. The balance sheet is disappearing before your eyes.

(Market Call Minute) It is too much of a stretch. They are too debt laden with a bad history.

The company has been in a bit of disarray. It is an improving story. Highly volatile. In the last month or so, this has been one of the worst performers on the S&P. He thinks it is getting it back together, so overall it is an improving story. They are selling off assets. You have to be very worried about oil prices on this one.

Probably a name he would hold or avoid, simply because it is so highly levered. A good company. It has some good assets. If you see a sustained bull market in energy, this could be fairly attractive. However he doesn’t think we are going to have a bull market in energy right now, so this is going to be range bound. He would sit on the sidelines for the next 6 months.

CHK's growth is expected to slow, so on a forward basis its P/E is 22X. EPS in 2023 will be less than half 2022's level. 25% growth though is expected in 2024. The balance sheet is very strong. The dividend varies, and was cut in half in August, so the stock really has not done much this year. We would consider it decent, but not great. It sold some assets earlier this year so it may take a bit of time to replace growth lost there. But its financial position has much improved. 
Unlock Premium - Try 5i Free