NEW YORK (TheStreet) -- Although Chesapeake Energy (CHK) - Get Report has taken steps to clean up its balance sheet since the arrival of CEO Doug Lawler in 2013, long-term profit growth remains a question at the oil and gas company, and without an answer, its stock will likely remain under pressure.
On Tuesday morning, the shares traded at $19.90, up 19 cents. They had lost 6.5% in the previous five trading sessions, and had gapped down on three of those days, a bearish indicator. Take a look at the chart as of Monday's close.
The Oklahoma City-based company -- which is scheduled to report its fourth-quarter and full-year results before the opening bell on Wednesday -- must slash spending. To what extent will determine if its stock will rebound. Complicating matters, Chesapeake has a net debt position of almost $11 billion, which it has used for exploration projects that are less profitable than before because of low oil and natural-gas prices.
Shares of energy companies have been beaten up. A report from the U.S. Energy Information Administration last week pointed to higher crude oil inventories in the U.S., which may mean that what once was asset for Chesapeake -- production growth -- could be a drag on the company.
For the fourth quarter, analysts are estimating that Chesapeake will report earnings of 24 cents a share on revenue of $4.8 billion, compared with an adjusted loss of 24 cents a share on revenue of $4.54 billion a year earlier. For the year, analysts are projecting earnings of $1.62 a share on $20.58 billion in revenue.
Chesapeake is also in a heated legal battle with its founder and former CEO, Aubrey McClendon. The company has accused McClendon of misappropriating information. In a lawsuit, filed last week in Oklahoma County District Court, the company alleges that McClendon used stolen information to form American Energy Partners LP in 2013.
All told, there are too many distractions for Chesapeake, which is projected to post annual earnings declines of 6% during the next five years. With the stock trading at 24 times estimated earnings, which is about four points higher than the average for companies in the Standard & Poor's 500 Index, investors can find better value elsewhere.
TheStreet Ratings team rates CHESAPEAKE ENERGY CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHESAPEAKE ENERGY CORP (CHK) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and poor profit margins."
You can view the full analysis from the report here: CHK Ratings Report
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stock mentioned.