Earnings Cheat Sheet: Will Chesapeake’s Share Price Ever Recover?

In the world of natural gas, Chesapeake (CHK) is one of the largest companies.  The company has a a market cap of 14 billion, and owns interest in over 44,000 productive wells. After trading around $66 in 2008, the stock has been stuck in the $20s for 2010.  Wednesday, after market hours, Chesapeake released its third quarter earnings.

Earnings: CHK reported third quarter earnings of 70 cents per share.  This matches last year’s third quarter earnings of 70 cents per share.  Profit for the third quarter was $515 million.

Revenue: Third quarter revenue increased to $2.58 billion, compared to $1.8 billion in the same year ago period.  This was partly due to a 23% increase in average daily production.

Actual versus Wall Street Expectations: Chesapeake beat earning estimates of 64 cents per share, and revenue estimates of $2.3 billion.  CHK has beat estimates for the past year.  However, the street appears disappointed as shares are down about 1.5% in after hour trading.

Notable Stats: In addition to drilling, Chesapeake also hedges in order to increase profits.  Natural gas and oil realized net hedging gains for the first three quarters of 2010 were $1.5 billion.  The total of net hedging gains since 2001 is $5.9 billion.

Did You Hear That? CEO Aubrey McClendon plans on increasing shareholder value.  He had the following to say about the company selling 33.3% of its oil and natural gas acres in Eagle Ford Shale project to Chinese company CNOOC. “When completed, this transaction will successfully accomplish another component of Chesapeake’s strategic and financial plan outlined in May 2010 designed to increase shareholder value. This brings the combined proceeds from our shale development ventures, including upfront cash payments and drilling carries, since 2008 to approximately $13 billion.”

Commentary: Chesapeake has seen better days in terms of share price.  Investors willing to invest in CHK will need to be prepared to wait for returns.  The 1.5% dividend that CHK currently pays doesn’t offer much incentive to wait.  However, CHK is plentiful of land and reserves, so perhaps the Chinese will continue to do business with CHK and give shares a lift.

Disclosure: Long position held in CHK