Chesapeake Energy (NYSE: CHK) jumped over 20% on Feb. 22 after reporting higher natural gas production. Markets did not expect EPS beat and revenue growth.
Though the stock was oversold going into earnings, investors need to watch if the stock holds its gains when digging into the details of the results.
Chesapeake Energy earned $0.30 a share on revenue of $2.52 billion (up 24.8% Y/Y). The big short squeeze partly explains the bounce: short float stood at 16.8 percent before the earnings report.
Still, CHK issued a good guidance, one good enough to scare away bears. For 2017, EBITDA was $2.376 billion and $764 million for 2017. The numbers are strong and on top of that, it reduced its outstanding secured term debt by around $1.3 billion, or 32%.
CHK is around $120 million a quarter from being free cash flow neutral. Cutting drilling activity this year will get the company there sooner. Strong oil and gas demand and lower supply will also facilitate Chesapeake getting there.
In the first half of 2018, CHK will sell another $500 million in assets. That should further allay fears of bankruptcy, at least in the short-term.
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