Tuesday, May 22, 2012

Today's Major Market Move: Chesapeake Energy (ticker:CHK) Drops 26% in May

Yesterday we talked about the recent bounce in natural gas prices  so it only seemed fitting that today we discuss companies that are involved in natural gas extraction. One of the better well known names, Chesapeake  Energy Corporation (ticker: CHK), managed to find a way to come up with enough of its own bad news to completely negate the effect of the boost in natgas prices. First, let's take a look at comparison of front month natural gas contracts vs CHK's stock price since April 19th:

Click here to go to the live chart.
Over the past 30+ days, natgas has rebounded 40% while CHK moved in the opposite direction, dropping 17% (and down 26% since May 1st). The primary cause for the recent sell-off was media reports that CHK's CEO Aubrey McClendon was involved in personal financial dealings that appeared to conflict with the interests of the company he was running. Other issues that have surfaced as of late are related to director pay and excessive leverage.

If we look at the chart of actual and estimated quarterly eps for CHK, we see that earnings are not expected to rise appreciably until the end of 2013. Of course were natural gas to continue to move higher in any kind of prolonged fashion, those estimates will prove to be on the low side.
Click her to go to the live chart.

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