Chesapeake Energy Corporation (NYSE: CHK) is moving up in the pre-market hours this morning, more than recovering from the just over 2% loss that the stock sustained on Friday. The losses came amid a positive earnings report followed by a relatively expensive acquisition that concerned investors. Nonetheless, the acquisition may lead to fruit in the long run and this investment may be a very strong one at these levels. Today, we’ll talk about:
- What’s going on with CHK and why it may be time to consider getting involved;
- what we’re seeing from the stock; and
- what we’ll be watching for ahead.
Here’s What’s Happening With CHK
Chesapeake Energy, along with others in the oil and energy sector, has been a very interesting stock to watch as of late. However, the story really got interesting on Friday. That’s because, not only were earnings released, an acquisition was announced.
In terms of earnings, CHK blew away expectations on both the top and bottom line. The company said that during the most recent quarter, it earned $0.19 per share on revenue of $1.199 billion. These figures came in well ahead of the $0.12 EPS on $1.16 billion that analysts expected to see. However, that wasn’t the big story on Friday. The big story surrounded an acquisition.
Along with earnings CHK announced that it had agreed to acquire Wildhorse Resources Development in a deal that would come to a total of just under $4 billion. The company said that the transaction would be paid for in a mix of cash and stock, with a value of the purchase being at $3 billion even. The other nearly $1 billion cost involved has to do with debt that the company has agreed to assume.
While for some investors, this acquisition may be a scary thought, the truth of the matter is that there’s no better time than now, and I believe that Chesapeake Energy made a great move. At the end of the day, the supply glut worries are all but behind us in the oil space, and the price of oil, while volatile, Has headed up in a pretty big way over the past year.
Through the acquisition of Wildhorse, CHK has gotten its hands on assets in the sector that have the potential to greatly expand the company’s production. Of course, expanded production means that there’s a larger opportunity for revenue. To put icing on the cake, there’s a strong argument that we will see further gains in oil ahead. That only means that there may be a larger opportunity for CHK to take advantage of its newly acquired assets.
What We’re Seeing From The Stock
It seems as though investors are starting to see the opportunity that Chesapeake Energy is bringing to the table with the Wildhorse acquisition. This can be seen in the strong gains that the stock is experiencing in the pre-market hours this morning. As is just about always the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (8:09), CHK is trading at $3.70 per share after a gain of $0.21 per share or 6.02% 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 company’s moves to take advantage of the assets that it has acquired through the Wildhorse acquisition. We’re also following the company’s continued growth as trends and expectations in the oil sector suggest that the company will have many compelling opportunities ahead. Nonetheless, we’ll keep a close eye on the news and bring it to you as it breaks!
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