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Why Chesapeake Energy (CHK) Tumbled on Thursday

Stocks in this article: CHK

NEW YORK (TheStreet) -- Chesapeake Energy  (CHK) was tumbling Thursday after announcing plans to cut capital expenditure by 20% over 2014. The natural gas producer, second-largest in the U.S., said it expects a full-year capex budget of $5.2 billion to $5.6 billion.

Adjusting for 2013 asset sales, 2014 production growth will likely be in the range of 8% to 10%. This consists of 8% to 12% oil production growth, 44% to 49% natural gas liquids growth, and 4% to 6% natural gas growth.

In a conference call Thursday, management told analysts December's average daily production was around 649,000 barrels of oil equivalent (boe), far below this year's guidance range of 680,000 to 695,000 boe. The lower-than-expected production was attributed to wintry weather and freezing temperatures.

Fourth-quarter and first-quarter production will be weaker than forecast but is expected to improve in the second quarter.

"Our improving capital efficiency has made it possible for us to forecast similar adjusted production growth in 2014 compared to 2013, despite a substantial reduction in capital expenditures and approximately 8% fewer operated wells expected to be connected to sales," said CEO Doug Lawler in a statement.

Chesapeake projects lower per-unit production and general and administrative (G&A) expenses over the year. Production expenses are expected to fall 10% year-over-year to $4.25 to $4.75 per boe. G&A expenses are anticipated to drop 25% year-over-year to between $1.35 and $1.60 per boe.

By early afternoon, shares had taken off 7.2% to $24.33, and 25.8 million shares had changed hands, more than three times its three-month average daily volume.

Must Read: Chesapeake Energy Corporation Announces 2014 Absolute Production Growth Target Of 2 - 4% On Planned Capital Expenditure Decrease Of 20%

TheStreet Ratings team rates CHESAPEAKE ENERGY CORP as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate CHESAPEAKE ENERGY CORP (CHK) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, compelling growth in net income, good cash flow from operations and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CHK's very impressive revenue growth greatly exceeded the industry average of 1.4%. Since the same quarter one year prior, revenues leaped by 63.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 107.52% and other important driving factors, this stock has surged by 34.16% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CHK should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 110.0% when compared to the same quarter one year prior, rising from -$2,013.00 million to $201.00 million.
  • Net operating cash flow has increased to $1,356.00 million or 43.94% when compared to the same quarter last year. In addition, CHESAPEAKE ENERGY CORP has also vastly surpassed the industry average cash flow growth rate of -44.35%.
  • CHESAPEAKE ENERGY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CHESAPEAKE ENERGY CORP swung to a loss, reporting -$1.62 versus $2.22 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus -$1.62).

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