Each time we cover the latest news on this stock, the situation goes further south.
Exactly a month ago, Chesapeake Energy Corp.(CHK) - Get Reportwas trading at about $4 a share -- and this week the stock is trading under $2. Some analysts are now saying it's a value, but we think it's still among the worst places to put your money. The question now is: can Chesapeake even survive? This stock is part of a group of distressed and "Stressed Out" stocks that TheStreet will be monitoring through these choppy markets.
We've previously written about how the Chesapeake story is more or less, at a close. Now, we argue that the company is likely to hit absolute rock bottom by the end of this tumultuous year, landing at a "zero" valuation. In fact, at a debt to equity of 255.08 times, Chesapeake is probably going the Linn Energy LLC way.
Let's take another look this giant disappointment.
Last heard, the company was aiming to use its cash-reserves and other instruments to pay back $500 million due next month. In another year's time, a billion dollars needs to be paid back.
Clearly, Chesapeake is facing an impossible task. While the company doesn't intend to file for bankruptcy right away, it could be only a matter of time before the inevitable is upon Chesapeake. If and when the bankruptcy declaration does happen, the stock should hit zero. Analysts at UBS have set a slashed price target of 50 cents for the stock.
The company's strategies to preserve cash like suspending its preferred dividends and offering second-lien notes to redeem some debt at a discount are smart moves, but are limited in scope as well as impact.
A Few Valiant Strides -- Little Hope, Minimal Muscle
Currently, creditors are busy figuring out how they could extract the largest pile of what Chesapeake owes them.
Chairman and CEO Aubrey McClendon is out of the picture. Robert D. Lawler may be an accomplished ex-Anadarko Petroleum executive (and now CEO of Chesapeake) but it's a huge uphill task to save this company.
On February 24, when Dec. 2015 quarterly earnings are revealed, analysts estimate a loss of 16 cents a share compared to 11 cents of profit in the year ago period. This worsens to 21 cents a share loss for the March 2016 quarter. Sales are estimated to have almost halved from $20.95 billion to $11.38 billion for the year.
Weak Numbers, A Climate of Gloom
While Saudi Arabia's Aramco has talked about how oil won't stay lower for much longer (everybody knows about the country's grip on the crude oil game), what global commodities traderVitol Group says is potentially more crucial: oil may not have bottomed yet, and it should take a while to recover.
That's a bold prediction and we hope Vitol is wrong.
And finally, Chesapeake's credit rating has already been downgraded to CCC+ from B with a negative outlook at the S&P. The fact of the matter is that the stock's credit is worth less and the stock is worth even lesser.
Don't go bottom fishing with Chesapeake -- soon there might nothing but a bottomless pit waiting for you. Instead, investors interested in this space could look at Exxon Mobil Corp. or ConocoPhillips Co. -- safer "value bets" in this worrisome energy climate.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.