Can Chesapeake Energy Corporation (NYSE:CHK) Stock Survive This Crisis?
Most investors understand that black swan events in the markets produce winners and losers. As a result of the 2020 pandemic, the oil market crash and the ensuing volatility, Chesapeake Energy (NYSE:CHK) has become one of the losers. Year-to-date, CHK stock is down 92%. By contrast, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP) is down 42%.
Although I’m overall optimistic regarding the potential recovery of our economy in months to return, at this time I would not commit any new capital to Chesapeake Energy. Indeed, in a few months, the company might not even exist in its current form, rendering Chesapeake Energy stock potentially worthless. Here’s why.
The Pandemic and CHK Stock
Oklahoma City-based Chesapeake on February 26 declared financial and operational results for the 2019 full-year and fourth quarter and released its annual guidance. The natural gas and oil producer reported a loss of 4 cents per share for the quarter versus an estimated loss of 6 cents. However, revenue of revenue of $969 million missed estimates by about 20%.
Net loss came at $324 million. In Q4 2019, it had had a net income of $605 million. Put in a different way, when the pandemic hit our shores and the oil crisis started in March, CHK stock was already in a fundamentally compromised state of affairs.
As oil and gas prices went into free fall in March, Chesapeake’s cash flow diminished. It also increasingly became troublesome for the company to manage its debt.
Then on April 13, the group declared 1-for-200 reverse stock split, stating: “The reverse stock split is intended to, among other things, increase the per share trading price of the Company’s stock to satisfy the $1.00 minimum bid price requirement for continued listing on the NYSE.”
In other words, without such a move, CHK stock would have been delisted.
A few days later management suspended dividend payments. A May 8 SEC filing showed that the group would currently be paying $25 million in bonuses to 21 top executives. Investors could also be interested to know that such a prepayment typically precedes bankruptcy filings.
Finally came the May 11 SEC filing that plainly expressed the problem the group was in. Management is currently seeking seeking “a restructuring, amendment or refinancing of existing debt through a private restructuring or reorganization under Chapter 11 of the Bankruptcy Code.”
In summary, the company has already told us what is probably next, i.e., bankruptcy.
Can CHK Stock Survive This Crisis?
The group was founded in 1989 and went public in 1992. Chesapeake Energy was number 309 on the 2019 Fortune 500 list. It had been included in the S&P 500 Mid-Cap index until late February.
Put in a different way, the company in question is not a penny stock with hardly any assets or revenue. As a result, investors are quite hopeful that management will navigate these stormy waters, particularly as the price of oil rebounds.
However, the group has been in difficulty before. In 2016, there had been rumors of a potential bankruptcy filing, too. But it had managed to pull through those troublesome days. At the time, research revealed by David Larcker and Brian Tayan of Stanford University highlighted poor corporate governance at the firm.
The Street is now fully expecting Chesapeake to file for bankruptcy. Furthermore, Franklin Resources (NYSE:BEN), a major institutional investor, has employed legal counsel to oversee the potential negotiations on a number of Chesapeake Energy’s debt the firm holds.
Seasoned investors realize that such a bankruptcy filing could potentially make CHK stock worthless. Even if the company were to figure out a deal that could enable it to avoid immediate bankruptcy, it’s hard to envision how CHK stock might go up in value.
The pandemic has brought most countries not only major health worries, but also economic question marks. It is likely that in the coming months, a range of public corporations could file for bankruptcy. And Chesapeake Energy will probably be one of them. The CHK stock price has already been cratering prior to this year’s unprecedented events. And currently it seems extremely unlikely that it will survive this final crisis.
At this time, I would not commit any new capital into CHK shares and instead would look to cut my losses. Even if the shares were to retain some value following a potential bankruptcy filing, there’s likely to be very little upside for the stock.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
The projected upper bound is: 23.45.
The projected lower bound is: 1.88.
The projected closing price is: 12.67.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 14 white candles and 36 black candles for a net of 22 black candles.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 22.0365. This is not an overbought or oversold reading. The last signal was a buy 0 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 41.16. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 30 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 27. This is not a topping or bottoming area. The last signal was a buy 12 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 11 period(s) ago.
Rex Takasugi – TD Profile
CHESAPEAKE ENER closed up 0.280 at 13.110. Volume was 47% below average (neutral) and Bollinger Bands were 86% narrower than normal.
Open High Low Close Volume 13.220 13.490 12.890 13.110 142,325
Technical Outlook Short Term: Neutral Intermediate Term: Bullish Long Term: Bearish
Moving Averages: 10-period 50-period 200-period Close: 13.41 21.59 143.44 Volatility: 80 280 220 Volume: 200,892 361,832 152,087
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
CHESAPEAKE ENER is currently 90.9% below its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future.
Our volume indicators reflect volume flowing into and out of CHK.N at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on CHK.N and have had this outlook for the last 0 periods.
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