Who would have expected Chesapeake Energy (CHK) to make it?

It would have been easy to write off the stock after it suffered sharp plunges in 2014 and 2015. But it is recovering -- albeit slowly -- and offers a risky but interesting growth opportunity. Investors should approach the stock with care.

Chesapeake Energy plans to announce earnings before the market opens Thursday. Observers of the oil and gas industry and the company expected some improvement from earlier in the year. 

Chesapeake shares dropped 3.6% during Tuesday's session. But the company is up 18% year to date, the result of its success in offloading assets to control mounting debt. It is also starting to see some benefits from a few key initiatives and a corporate restructuring.

The long-term outlook for the company has improved. Analysts from Citi, Bank of America, Merrill Lynch, Nomura, Jefferies and Deutsche Bank have raised their target prices.

August was a special month for Chesapeake. Fueling a solid rebound in the beaten-down stock were rising oil prices, asset sales and an improving balance sheet. 

Debt of $9.6 billion may look sizable (compared to its market capitalization of $4.02 billion), but Chesapeake had loans worth close to $12 billion not too long ago.

RBC Capital has said the company's lower cost structure and improved margin outlook over the next few years is a positive. Chesapeake has previously said its earnings before interest, taxes, depreciation and amortization will double by 2018, while the share of liquids production will rise.

Chesapeake's massive debt and struggles amidst a sinking oil market have been well-documented. But CEO Doug Lawler and CFO Dominic Dell'Osso have done a good job of repositioning the company. 

Chesapeake is making more of its assets and has worked out some smart strategic agreements. For instance, joint venture partners Williams Partners and Crestwood Equity Partners announced a pact with Chesapeake to restructure natural gas gathering and processing services in Wyoming's Powder River Basin. The deal improves economics for the asset.

Chesapeake stock trades at a discount to peers. Its enterprise value-to-revenue ratio of 1.5 is less than similarly sized peers such as Marathon Oil (3.6) and Noble Energy (6.9) because of all the negatives.

To be sure, Chesapeake needs a strong asset sale plan to reduce debt further. Despite continued reductions in capital spending and further asset sales, Chesapeake will still have negative free cash flow for some more time. 

As Chesapeake ramps up production in 2017, there are still concerns. UBS, which has a "sell" rating on the stock, thinks the company's debt load remains too high.

But Chesapeake Energy says it has accumulated more-than-adequate cash to pay bondholders through the end of 2018. A continued recovery of oil prices should further buoy the company.

So, should you jump in?

If you already own Chesapeake, hold your shares. Consider buying the stock, but only if you're prepared to handle the risk. If you're risk averse, let the company show more progress on asset sales and debt reduction before buying. Regardless, this company is back from the dead.

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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.

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