NEW YORK (TheStreet) -- Shares of Chesapeake Energy (CHK) - Get Report are falling by 7.21% to $4.27 in mid-morning trading on Wednesday, as the energy sector takes a hit from the decline in oil prices this morning.
The price of the commodity is back trading in the red as Saudi Arabia reiterated its plan to continuing to produce oil at higher levels and as investors await stockpile data out of the U.S., the Wall Street Journal reports.
Crude oil (WTI) is slipping by 2.48% to $36.93 per barrel and Brent crude is declining by 2.28% to $36.93 per barrel, according to the CNBC.com index.
The Energy Information Administration is supposed to release its latest U.S. supply data at 10:30 a.m. ET today. Oil prices fell on concerns that the data will show an increase in crude stockpiles.
Analysts surveyed by the Journal had forecast that the EIA would show a decline in supplies for last week. However, the American Petroleum Institute released its weekly figures yesterday and reported a rise of 2.9 million barrels for the same period.
Chesapeake Energy is an Oklahoma City-based producer of natural gas, oil and natural gas liquids in the U.S.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate CHESAPEAKE ENERGY CORP as a Sell with a ratings score of D. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 803.9% when compared to the same quarter one year ago, falling from $661.00 million to -$4,653.00 million.
- The debt-to-equity ratio is very high at 2.71 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, CHK has a quick ratio of 0.67, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CHESAPEAKE ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $318.00 million or 72.63% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 78.32%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 2823.07% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: CHK