What to Expect From Chesapeake Earnings

Ahead of Wednesday morning’s scheduled earnings announcement, Moody’s Investors Service downgraded the corporate debt rating for Chesapeake Energy Corp. (NYSE: CHK) from B2 to Caa2, a drop of three notches and just one notch above a default-imminent rating. Moody’s also lowered its outlook on Chesapeake to negative.

When Chesapeake reports results Wednesday morning, analysts are expecting a fourth-quarter net loss per share of $0.17 and revenues of $2.63 billion. For the full-year, the consensus estimate calls for a net loss of $0.22 and revenues of $11.38 billion.

Citigroup lowered its price target on the stock from $9 to $5 in January and about 10 days ago reiterated its Hold rating on the shares. The consensus price target, according to Thomson/First Call, is $4.00 and shares traded down about 3.8% at $2.30 in the early afternoon on Tuesday.

Here are Moody’s comments on its downgrade:

The Caa2 [rating] incorporates Chesapeake’s very weak cash flow generation capacity at our commodity price assumptions relative to its high debt levels and weak liquidity resulting in an unsustainable capital structure. The challenging environment for large asset sales will hinder Chesapeake’s ability to reduce debt in the magnitude necessary without further restructuring transactions, which heightens the risk of default. Low commodity prices will pressure its available borrowing capacity under its revolving credit facility and Chesapeake still has sizable debt maturities in 2017 and 2018.

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Tortoise Capital portfolio manager Rob Thummel had a little better news on Chesapeake, as it relates to the Williams Companies Inc. (NYSE: WMB):

Williams dedicated some time on its earnings call last week to address its exposure to Chesapeake Energy due to investor concerns of a potential Chesapeake bankruptcy. Chesapeake represents approximately 18% of Williams’ cash flow. Williams’ management highlighted the critical nature of its gathering lines in order for Chesapeake to generate revenue. Williams’ management also expressed its confidence in Chesapeake as an operator. It was also reported that Chesapeake plans to make its scheduled debt payment of March 15th.

Making its debt payments on time is critical to Chesapeake, but it probably is not enough, by itself, to cheer investors up much.

Chesapeake shares traded down more than 5% in the late afternoon Wednesday, at $2.26 in a 52-week range of $1.50 to $20.05.