Why Chesapeake Energy (CHK) Stock Is Down In Pre-Market Trading Today

NEW YORK (TheStreet) -- Chesapeake Energy (CHK) shares are falling in pre-market trading today, down -2.5% to $28.25, following the announcement that it s is going ahead with plans to spin off its drilling-rig business.

The spin off will shed about half of the energy company's workforce with the new company to be named Seventy Seven Energy Inc. The move is an effort to raise capital for the struggling company and, along with other divestitures and asset sales, is expected to generate $3.1 billion.

Along with the cash windfall the moves are expected to shave $250 million off of the company's operating cash flow during the current fiscal year.

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

"We rate CHESAPEAKE ENERGY CORP (CHK) a BUY. This is driven by some important positives, 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, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins."

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

  • The revenue growth greatly exceeded the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 47.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CHESAPEAKE ENERGY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. 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 ($1.96 versus $0.68).
  • 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 632.8% when compared to the same quarter one year prior, rising from $58.00 million to $425.00 million.
  • Net operating cash flow has increased to $1,291.00 million or 39.71% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 16.30%.
  • Powered by its strong earnings growth of 2600.00% and other important driving factors, this stock has surged by 51.84% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: CHK Ratings Report
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