How Will Chesapeake Energy (CHK) Stock React To These Racketeering Charges?

NEW YORK (TheStreet) -- Chesapeake Energy Corp. (CHK) will go to trial in Michigan and face felony racketeering, and other charges relating to its land-leasing practices, Reuters reports.

A Michigan state judge, in the Cheboygan District Court, ruled on Monday that the Oklahoma-based natural gas and oil company must stand trial on one count of racketeering and 20 counts of using false pretenses to defraud private landowners during a 2010 oil and gas leasing spike, Reuters added.

In June, Michigan state Attorney General Bill Schuette brought the allegations against Chesapeake, claiming the company pulled out of deals citing the property's mortgage as an issue after telling clients it would not be a problem.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

The state is charging Chesapeake with obtaining "uncompensated land options from these landowners by false pretenses, and prevented competitors from leasing the land," Reuters noted.

In a statement to Reuters, the company said the allegations have no merit and that it expects to come out victorious in court. A trial date has not been set. 

Shares of Chesapeake Energy are down by 0.66% to $25.41 in late afternoon trading on Tuesday.

Separately, 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 revenue growth, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and poor profit margins."

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

  • The revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 10.2%. 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 slightly increased to $1,352.00 million or 5.54% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -5.22%.
  • 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 ($1.76 versus $0.68).
  • The gross profit margin for CHESAPEAKE ENERGY CORP is currently lower than what is desirable, coming in at 27.56%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 3.70% trails that of the industry average.
  • In its most recent trading session, CHK has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • You can view the full analysis from the report here: CHK Ratings Report

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