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Why Chesapeake Energy’s Shares Popped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of embattled oil & gas company Chesapeake Energy (NYSE: CHK  ) rose 10% today after saying it would slow down spending.

So what: Aubrey McClendon is finally stopping the land grab at Chesapeake, and says he will sell $14 billion in assets this year and up to $5 billion more next year. The company also said it would cut its capital spending budget by $6 billion next year, after spending $13 billion this year. The company has a $10 billion funding gap this year, and investors have been pressuring the company to sell assets and reduce spending.  

In the second quarter, the company’s net income reached $972 million, or $1.29 per share, and adjusted EPS of $0.06 topped estimates of $0.02. 

Now what: The company still plans to spend more money this year, so the changes aren’t taking place overnight. I think this is an incremental positive for the company, but there are still major concerns. McClendon is still at the helm after his conflicts of interest were unearthed. Chesapeake looks like a decent value if asset sales are completed, but I’m worried about the funding gap. I would take a cautious approach, even after the promise to cut spending today.

Interested in more info on Chesapeake Energy? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Chesapeake Energy. The Motley Fool has a disclosure policy.
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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2012, at 8:49 PM, RIGmagazine wrote:

    Production and low natural gas prices have cut into profit but I would expect CHK to trade higher than current prices in 2013.

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Chesapeake Energy CAPS Rating: ***