NEW YORK (TheStreet) -- Chesapeake Energy (CHK) was falling 0.6% to $24.88 Monday after the company filed paperwork to spin off its oilfield services business to shareholders.
The Form 10 the company filed with the SEC has some preliminary information about the financial, business, management, and risk factors involved in the potential spin-off. Following a spin off the oilfield services division would become its own corporation with the name Seventy Seven Energy.
Chesapeake Energy first said it was considering strategic alternatives for the division in February. At the time the company said the business would generate about $650 million in 2014, and that a sale of the division would have "minimal impact" on the company's 2014 guidance.
Morgan Stanley (MA) was hired to serve as a financial advisor in regards to the spin-off.
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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, good cash flow from operations and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and generally higher debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 7.8%. Since the same quarter one year prior, revenues rose by 28.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $1,053.00 million or 20.61% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.54%.
- CHESAPEAKE ENERGY CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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 turned its bottom line around by earning $0.68 versus -$1.62 in the prior year. This year, the market expects an improvement in earnings ($1.83 versus $0.68).
- 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 138.7% when compared to the same quarter one year ago, falling from $300.00 million to -$116.00 million.
- The gross profit margin for CHESAPEAKE ENERGY CORP is currently lower than what is desirable, coming in at 29.29%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.55% trails that of the industry average.
- You can view the full analysis from the report here: CHK Ratings Report