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Why Chesapeake Energy Corporation Stock Plunged 46% in February

By Reuben Gregg Brewer - Mar 5, 2020 at 7:29AM

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Low oil prices, helped along by coronavirus concerns, hit Chesapeake, but investors had to digest more bad news than that in February.

What happened

Shares of Chesapeake Energy Corporation (CHKA.Q) declined a painful 46% in February, according to data from S&P Global Market Intelligence. In the first two months of 2020 the stock has lost two-thirds of its value. By comparison, the S&P 500 Index was down roughly 8% in February and for the two-month span. The broad market sell-off driven by COVID-19 was clearly an issue for this oil and natural gas driller, but it was only one piece of the bigger puzzle here.

So what

Chesapeake Energy has been struggling under the weight of a heavy debt load. Low oil and natural gas prices haven't helped. So the coronavirus, which has reduced demand in the energy industry at a time when supply is already high, hasn't been helpful. As soon as COVID-19 news started to flow out of China, oil and gas prices started to fall.

An oil well and two men writing in notebooks in the foreground.

Image source: Getty Images.

However, Chesapeake's problems run much deeper. And the news flow out of the company so far this year hasn't been particularly inspiring. For example, in late January the company provided preliminary fourth-quarter 2019 results. Management basically explained to investors that production would be lower year over year, that leverage remained a big issue, and that cost-cutting was going to be a big focus for the foreseeable future. None of this was unexpected, but it did confirm the already-negative sentiment that existed around the stock.   

Then, in late February, Chesapeake released its full-year 2019 results. The news was not good, and the stock fell sharply following the announcement. Earnings declined even further into the red, hitting a loss of $0.25 per share compared with a loss of $0.15 in 2018. Full-year production declined and was expected to fall again in 2020. To deal with its burdensome debt load, the oil and gas driller was planning to try and sell assets. And cost-cutting was still the order of the day. In other words, Chesapeake is still struggling.   

Now what

Chesapeake Energy is doing the best it can to work through a very difficult time. COVID-19 isn't helping with this process, since it has depressed demand for energy and thus energy prices. However, Chesapeake's problems are much bigger than the coronavirus, and most investors should probably stick with oil drillers that are in a better financial position if they want to own an energy company today.

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