Chesapeake Energy Corporation (CHK) – Prospects looking good as OPEC cuts supply

[NYSE: CHK]: Chesapeake Energy Corporation (CHK) is one of the best performers in the past 24-hours, as have most energy stocks in the same period. This follows the decision by OPEC and its allies to cut supplies, a decision that puts oil companies in a good position for growth in coming quarters. However, there are those that are better placed to perform better than the rest. Companies that have heavy capital investments are unlikely to have any major returns in the short-term.

This explains why analysts believe a company like Exxon Mobile could be bearish in the short-term. One company that holds good prospects in coming periods is Cheasapeake Energy Corporation. This company’s oil production shot up in Q4 of 2018, and are likely to increase in this quarter. With the higher oil prices at the moment, this company’s Q1 results are likely to be higher, and if they beat expectations, then it could post good results this quarter.

Another interesting aspect to this company that gives it good prospects this quarter is its declining debt levels. The company has in the last one year reduced its debt by $1.8 billion. This was achieved through asset sales. This is a big deal because it means this company is shielded from a spike in interest rates.  Yesterday, the World Bank stated that the clouds were darkening over the global economy. It cites two factors for this. The first one is the China-U.S trade war, which poses a risk to the flow of goods across the world. The second one is the rising debt levels. This means that any company that has high debt might be in trouble in the future.  In essence, for a company like Chesapeake Energy Corporation, which is cutting down on its debt, the future is bright.

Besides, from its books, Chesapeake Energy debt situation is very manageable. The company has a current ratio of 0.41. This is quite a high current ratio for a company in an industry as capital intensive as Energy. It is an indicator that the companies revenues are strong enough to repay the company’s debts.  With the possibility of an increase in oil prices this year, chances are that this company’s current ratio will get even higher. This makes it a relatively safe bet all through 2019 and 2020, the period in which, the World Bank forecasts the global economy could slow down, and possibly enter a recession.

Another factor that makes this company a good hold in this and in coming quarters is its high beta value.  It has a beta value of 3.15. This means its multiple times more volatile than the rest of the market. Considering that bullish momentum is rising in the market, this company is likely to give higher returns than the market. It may be a risk if the market turns bearish, but in the current market where momentum is bullish, it makes for a good high potential buy backed by higher oil prices.

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