Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, natural gas producer Chesapeake Energy (NYSE: CHK) has earned a coveted five-star ranking.
With that in mind, let's take a closer look at Chesapeake's business and see what CAPS investors are saying about the stock right now.
Chesapeake facts
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Headquarters (Founded)
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Oklahoma City, Okla. (1989)
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Market Cap
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$13.9 billion
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Industry
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Oil and gas exploration and production
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Trailing-12-Month Revenue
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$8.8 billion
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Management
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Co-Founder/CEO Aubrey McClendon
CFO Marcus Rowland
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Return on Equity (Average, Past 3 Years)
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(11%)
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Cash/Debt
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$601.0 million / $10.5 billion
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Dividend Yield
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1.4%
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Competitors
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Anadarko Petroleum (NYSE: APC )
Apache (NYSE: APA )
Devon Energy (NYSE: DVN )
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Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 97% of the 7,136 members who have rated Chesapeake believe the stock will outperform the S&P 500 going forward. These bulls include ww2004 and OlegTudor.
A few months ago, ww2004 tapped the stock as a rather natural selection:
Natural gas will play a bigger role in the energy mix for the US over the next several years and Chesapeake is well positioned to profit from the trend. Their production is in the US and on shore. They are beginning a push to increase the amounts of natural gas liquids and oil, using their expertise in unconventional drilling.
An aggressive debt-fueled growth strategy combined with plummeting natural gas prices almost led to the demise of Chesapeake in the second half of 2008. However, thanks to heavy asset sales and key drilling partnerships with energy giants like Statoil (NYSE: STO ) (in the Marcellus), BP (NYSE: BP ) (Fayetteville), and Total (NYSE: TOT ) (Barnett), Chesapeake has steadily managed to develop acreage while limiting the stress on its balance sheet. Of course, with a debt/equity ratio of 70%, that balance sheet remains substantially more levered than those of competitors Anadarko (61%), Devon (33%), and Apache (28%).
CAPS member OlegTudor, however, expands on why Chesapeake is well worth the risk:
a) Acquisition, exploration, production and distribution (gathering) of natural gas. It has one of the cheapest cost structures in the market. They have an excellent replacement ratio and cost. They replace reserves at multiples (not just percentage increases) of production, with ever lower costs.
b) Divesting (via partnerships), portions of its various plays. It does so at high profits. Implicit valuation of the company (for the non sold part) is well above market value of the outstanding shares, plus the value of the other fields yet to be included in partnerships. ...
c) Hedging (mainly gas, but also interests). Including the losses (foregone profits, really) when gas was over 13 dollars/mcf, cumulative hedges have already added 4 billion to the bottom line.
I would definitely call this an "outperform company"
What do you think about Chesapeake, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!
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