Chesapeake Loses One of Its Biggest Bulls

By Chris Lange Published Jun 11, 2:05PM EDT

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Chesapeake Energy Corp. (NYSE: CHK) is under fire by analysts. Oppenheimer is downgrading this oil company due to its growing losses and its cash flow deficit. The firm is also changing its estimates in light of these losses.

In the first quarter, Chesapeake had an operating cash flow of $908 million and net borrowings of $670 million. The company also funded $1.49 billion capex. It issued $59 million in dividends and $72 million in preferred dividends and non-controlling interest distributions. At the end of the quarter, debt was $10.6 billion and cash was $2.9 billion for a net debt ratio of 34.9%.

Earnings per share (EPS) in the first quarter were $0.11, well above the consensus estimate of $0.03 EPS, but this was down 82% from the same period last year and 3% sequentially. A decline in unhedged prices of 58% year over year and 24% sequentially was partly offset by hedging gains and higher production volume. As a result Oppenheimer tweaked its 2016 estimated EPS to a net loss of $0.84 per share from a net loss of $0.76 per share.

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Oppenheimer further detailed in its report:

We are downgrading Chesapeake to Perform from Outperform and removing our $22/share price target, to reflect the negative impact on earnings and cash flow from lower oil and gas prices and lower production as a result of asset sales and sharply lower capital spending. Based on the future strip benchmark oil and gas prices, we expect Chesapeake to report losses of $544 million this year and $833 million next year, or $0.48/share and $0.84/share, respectively. We expect operating cash flow of $2.1 billion this year and $1.5 billion next year. Assuming CAPEX of $3.7 billion, annual dividends of ~$230 million and preferred dividend of ~$220 million, we expect free cash flow deficits of $2.1 billion and $2.7 billion, respectively.

The highest analyst target is still listed all the way up at $24, but with the current price level under $14, that has to be seriously at risk too.

Shares of Chesapeake were down 3.2% at $12.64 on Thursday afternoon. The stock has a consensus analyst price target of $15.67 and a 52-week trading range of $12.45 to $29.92.

About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.