May 11, 2012
Written By Gray Cardiff
“The price of natural gas has continued its slide to historic lows, even dipping below $2.00 per million British Thermal Units (BTUs) as a result of significant over-supply and low domestic demand because of a relatively mild winter. We think this is providing an excellent opportunity to lock in a great investment bargain; the kind that may not be seen in a lifetime.
“Chesapeake Energy Corp. (CHK 16.93 NYSE – yield 2.10%) is an independent exploration and production company, dominant in the mid-continent region with expanding interests in the Appalachian Basin, the Barnett Shale, the Arkansas/Louisiana/Texas border area, as well as in south and west Texas, including the Permian Basin. Chesapeake’s production assets are almost entirely natural gas, which makes it a nearly pure natural gas investment. In fact, it is only second to Exxon as the country’s largest natural gas producer.
“Of course, due to the current state of the natural gas industry, CHK has been hammered, and is trading near the low end of its 52-week trading range of $16.72 to $35.75 a share. In fact, the stock hasn’t been this low since the melt-down in 2008 and early 2009. It was above $35 a share as recently as mid-2011. Earnings per share fell 5.7% in 2011, and were also disappointing for the first quarter, primarily due to low natural gas prices. Given the depressed state of the natural gas industry, earnings estimates have been slashed to approximately $2.00 per share for 2012, although most analysts are projecting earnings to begin rising again in 2013 with an improving economy and strong growth in production from some of Chesapeake’s assets, especially from its Marcellus, Eagle Ford, and Anadarko Basin acreage.”
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Gray Cardiff, Sound Advice, May 2, 2012