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Chesapeake Energy's Chart Speaks Volumes to Investors

NEW YORK (The Street) -- The investment community is taking a sharper interest in Chesapeake Energy (CHK - Get Report) since a downgrade Tuesday, trying to figure out this controversial energy giant.

CHK, whose shares closed at $25.85 Wednesday and trades on average daily volume of over nine million shares, have taken an 11% "haircut" since the stock hit its 52-week high of $29.06 on Nov. 4. For the year to date, shares are down nearly 6%.

On Tuesday the analysts at Bank of America downgraded CHK to neutral from buy and reduced the price target to $31 from $36. There had been a "recovery thesis" underlying the stock's rating when the share price was significantly lower. That recovery thesis has evidently played itself out.

The Oklahoma City company is the second-largest producer of natural gas, the 11th largest producer of oil and natural gas liquids and the most active driller of onshore wells in the U.S., according to its Web site.


The extent of its operations and areas of exploration and development are downright impressive, including holdings in the Eagle Ford, Marcellus, Haynesville/Bossier, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara unconventional liquids and natural gas shale plays. CHK also controls large marketing and oilfield services operations through its subsidiaries Chesapeake Energy Marketing and Chesapeake Oil Services.

Sometime between Feb. 17 and Feb. 21 the company will announce earnings results for the fourth quarter of 2013, and expectations are high. The average analysts' estimate on earnings per share for the quarter is an increase of around 65%. That may help explain why its share price had appreciated about 48% in the past year.

The same community of analysts who cover CHK are anticipating sales growth for the fourth quarter to come in at around a 31% increase. Revenue for the year is expected to be over $17.3 billion, up almost 78% during the time period from the 52-week low of $16.37 to the 52-week high of $29.06 on Nov 4. The company made great strides in 2013 to improve efficiency across the board, including steps to increase free cash flow. At the end of its third quarter its trailing 12-month (TTM) levered free cash flow was a minus $3.6 billion.

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