Chesapeake Energy Corporation (NYSE:CHK) Financial Analysis


United States of America’s second biggest natural gas producer and eleventh largest producer of liquids, Chesapeake Energy Corporation (NYSE:CHK) has never been considered as a company worth investing in. Starting with a meager $50,000 from its owners in 1989, Chesapeake Energy Corporation (NYSE:CHK) has grown to become one of the top gas and oil producers present in the United States. So why has Chesapeake Energy (NYSE:CHK) never realized its potential?

A deeper look into the financial performance of the company projects a solid growth for the next few years. However, the growth rate has slowed down in recent years as Chesapeake Energy (NYSE:CHK) has accumulated alot of debt, hence postponing its plan to become a global empire. It went on to produce 695 thousand barrels per day which puts it behind two other companies, however its projected growth of 7%-10% in 2015 is much better than both the other companies.

Chesapeake’s (NYSE:CHK) main problem is that it fails to convert its production growth into earnings. According to calculation, the company’s 5 years earning growth rate stands at 6.47% and price to earnings growth ratio at 1.93. Its growth rate is quite similar to other companies having a production rate which is twice of Chesapeake’s (NYSE:CHK) production rate.

However it’s PED which stands at almost 2, deters investors from investing in it. A PED of 1 is considered cheap and a company like Devon energy which has a price to earnings growth rate of above 14 % and PED of less than 1 is considered more appealing to potential investors. Devon energy is projected to grow at a faster rate and its stock is available at a cheap valuation.

Chesapeake (NYSE:CHK) still remains mostly a natural gas producer which is one of the reasons its earnings won’t grow as fast as a company like Devon energy. Last quarter, 72% of the production by Chesapeake (NYSE:CHK) was natural gas compared to Devon energy which produced it at around 40%. This results in lower margins for the company which adversely effects its return on equity.

So to boost its return, Chesapeake (NYSE:CHK) needs to improve its margins. Reallocation of resources needs to take place and directors of Chesapeake (NYSE:CHK) need to see the shift in demand of the global market and its prices. While Chesapeake (NYSE:CHK) is a strong organization and its turnaround has it heading in the right direction as well, it still has a lot of work to do.

Then again this could change as the organization keeps on reshaping its portfolio. Notwithstanding, at this time a monetary proportion examination lets us know that its numbers are not tantamount to its associates, abandoning us to presume that there are better alternatives for financial specialists looking to discover one incredible vital stock for their portfolio.