Wednesday, November 4, 2009

CHK Q309 Earnings (Dan Goldfarb)

Chesapeake Energy Corp. reported revenues in the third quarter of $1.81 billion, down from $7.49 billion a year ago. Net income for the third quarter was $186 million, down significantly from the $3.3 billion for the same period (primarily due to lower demand and lower natural gas prices) last year but still beating analysts’ expectations of $0.65 per share by 5 cents.

The company increased production by only 1 percent from the second quarter but by 7 percent from 3Q08. Natural gas still accounts for 92 percent of the company’s total production, but executives recently said the company would be open to growing its oil business. The company expects annual production growth of between 5 percent and 6 percent for 2009, and at least 8 percent and 12 percent in 2010 and 2011, respectively.

If you compare CHK's 7.50% projected EPS growth rate for the next five years with the projected EPS growth rate of 6.68% for the Independent Oil & Gas industry as a whole during that same time frame, you can see that analysts expect CHK to outperform the industry in the future, which is a good sign for the stock.

I feel Chesapeake is currently undervalued and is poised for solid gains for the rest of 2009 and into 2010. As natural gas prices remain high and the overall economy continues to improve, Chesapeake should see increased overall demand and profit. Management remains confident in their ability to combat poor market conditions and the fluctuations in the price of natural gas if they should arise. Currently, Chesapeake remains a Hold.

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