Chesapeake Energy (CHK) Stock: Climbing On Earnings Beat And Outlook

Chesapeake Energy Corporation (NYSE: CHK) is having an incredibly strong start in the pre-market hours this morning, and for good reason. The comapny announced its earnings, blowing away epectations and setting th stage for further growth.

Of course, the news excited investors who are pushing the stock on a run for the top. Today, we’ll talk about:

  • The earnings report;
  • what we’re seeing from CHK stock as a result; and
  • what we’ll be watching for ahead.

CHK Reports Earnings

As mentioned above, Chesapeake Energy is having a great start to the trading session this morning after reporting its financial results. The Q4 results came by way of press release early this morning. Here’s what we saw:

  • Net Income – Net income for the quarter came in at $486 million. That works out to $0.49 per share and is well ahead of the $309 million of $0.33 per share reported one year ago.
  • EPS – Adjusted earnings per share came in at $0.21. That also proved to be great news for CHK as analysts were expecting to see earnings per share in the amount of $0.18.
  • Revenue – Also, the company did very well in terms of revenue. During the quarter, the company said it produced $3.07 billion, representing a year of year growth rate of 22%. Analysts expected that revenue would come in at just $2.28 billion.
  • Production Expectations – Finally, the company said that it is expecting for production to increase by around 32% in 2019.

In a statement, Doug Lawler, President and CEO at CHK, had the following to offer:

I am very pleased with Chesapeake’s operational and financial performance in 2018. Two transformational business transactions not only serve as a significant inflection point for the company, but also provide foundational support in our strategic goals of further reducing our net debt, achieving sustainable positive free cash flow, and enhancing margins. The recent acquisition of WildHorse, which we refer to as our Brazos Valley business unit, provides significant profitability, flexibility and optionality to our diverse, deep asset portfolio and facilitates our achieving these strategic goals.

Over the past five years, we have clearly established our operational and capital efficiency leadership. We have also materially improved our financial leverage and significantly reduced our obligations, commitments and complexity. Our 2018 accomplishments of 10 percent adjusted oil growth, improved realizations and lower absolute cash costs compared to 2017 resulted in the highest EBITDA generated per boe for Chesapeake since 2014, when oil averaged more than $90 per barrel and gas averaged more than $4 per thousand cubic feet. Our strategic focus on increasing our oil production is working, as we increased annual net oil volumes from the PRB by 78 percent in 2018, resulting in oil production representing 21 percent of our overall production mix in December. Our oil focus will be fully evident in 2019, as annual net oil volumes from the PRB are expected to more than double compared to 2018 and as we begin a robust drilling program on our Brazos Valley asset, while also attacking the base production in all our operating areas with full-field optimization and downtime reduction programs. As a result, we project our average oil mix to be approximately 24 percent of total volumes in 2019 compared to 17 percent in 2018, with our year-end 2019 oil mix approaching 26 percent.

We are off to a fast start in 2019. With the integration of the Brazos Valley asset into Chesapeake fully underway, we are already seeing a significant amount of cost savings to be captured and strong performance from the asset. The Brazos Valley asset had very strong 2018 fourth quarter performance, with production, capital expenditures and cash flow better than we had originally projected at the time of the acquisition announcement.

At today’s strip pricing, we expect our cash flow to be meaningfully stronger in 2019, as we continue to leverage our strength in capital efficiency and cash cost leadership. Chesapeake’s progress, portfolio and strategic plan provides a compelling investment opportunity and we look forward to driving differential value for our shareholders in the year ahead.

What We’re Seeing From The Stock 

One of the first lessons that we learn when we start to work in the market is that the news leads to moves. When it comes to Chesapeake Energy, the news proved to be overwhelmingly positive. After all, the company showed strong growth in Q4 and set the stage for more of the same throughout 2019.

So, it’s not a shocker to see that excited investors are pushing the stock on a run for the top. As is normally the case, our partners at Trade Ideas were the first to alert us to the movement. At the moment (8:15), CHK is trading at $2.89 per share after a gain of $0.26 per share or 9.89% thus far today.

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What We’ll Be Watching For Ahead

Moving forward, the CNA Finance team will continue to keep a close eye on CHK. In particular, we’re interested in following the story surrounding the company’s continued work to expand production, revenue and value for investors. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!

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