Chesapeake Energy (CHK)
, already battered by a natural gas glut, is fighting to find a way to rise past reports its CEO used corporate assets to take out large loans through a company program. The scandal and other factors have led investors to bid the stock down, perhaps below fair value.
Chesapeake Energy is the second-largest natural gas producer in the United States. It works primarily in the developing gas and oil reserves in shale plays in Texas, Louisiana, West Virginia, and Pennsylvania. The company is also developing liquids in the upper Midwest and West, Appalachia, and the Gulf Coast.
Proved oil and gas reserves rose 20 percent in 2010 to 17.1 trillion cubic feet equivalent (Tcfe). Oil and gas production rose 15 percent, to 1,059 billion cubic feet equivalent, neearly 90 percent of which was gas.
Chesapeake’s stock price has been hammered of late, in part on the rapid decline in natural gas prices as huge new reserves are being found and exploited on U.S. soil. However, much of the damage has been the company’s own doing. A Reuters investigation found that the CEO, Aubrey McClendon, took out $1.1 billion in loans backed by company wells.
McClendon has been removed as chairman of the board and a company program through which he took the loans will be ended early, Reuters reports. Pressure is on from investors to sell assets and perhaps sell the company to save it.
That has driven down the price despite the huge reserves and potential future value of the gas driller. The stock traded below $17 today. The 52-week high was $35.75.
Chesapeake has a market cap of $11.35 billion in a sector, oil and gas, where the average company size is $48.30 billion. Its trailing 12-month P/E ratio is 7.05 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.55, compared to 1.23 for the sector.
Its projected earnings per share growth for the coming year is 137.93 percent, higher than the sector average at 13.82 percent.
Analysts are mixed on Chesapeake, although some of the positive ratings are from earlier in the year, before the scandal news broke. Merrill Lynch, Stifel Nicolaus, B.P. Bernstein and Jefferies rate the company at buy or outperform. JP Morgan expects the stock to underperform.
Standard and Poor’s recently downgraded Chesapeake to hold from buy on an earnings per share miss due to declines in natural gas prices. “On updated peer metrics, DCF and NAV, we cut our target price by $10 to $20,” S&P analysts recently wrote.
Chesapeake next reports in early August.
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