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Feb. 28, 2020, 2:42 p.m. EST

Chesapeake Energy’s stock target cut to zero at MKM Partners

A 27-cent stock isn’t too cheap to sell, as MKM’s John Gerdes turns bearish

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By Tomi Kilgore, MarketWatch


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Shares of Chesapeake Energy Corp. appeared to stabilize Friday, a pause in the selloff that sent prices briefly into the teens, although MKM Partners analyst John Gerdes suggested it was still not too late to sell.

The oil and natural gas company’s stock /zigman2/quotes/201364537/composite CHK -2.25%  edged up nearly 4% to 26.99 cents, paring an earlier plunge of as much as 23% to an all-time intraday low of 19.99 cents. It had plummeted 41.4% over the past two sessions to Thursday’s record-low close of 26.01 cents.

Weighing on the stock this week was Chesapeake’s fourth-quarter report, in which the company missed revenue expectations, provided a downbeat outlook on commodities pricing and said it was planning a reverse stock split as share prices fell to “very low” levels.

The sharp drop in crude oil /zigman2/quotes/209723049/delayed CL00 +4.78%  and natural gas /zigman2/quotes/210189548/delayed NG00 +0.71%   prices, as the world-wide spread of the COVID-19 fuels fear that a resulting global economic slowdown will sap demand, certainly wasn’t helping. See Futures Movers.

And late Thursday, S&P Dow Jones Indices said it would be booting the stock from its S&P MidCap 400 index /zigman2/quotes/210599897/delayed MID -0.52%  , as the company is “no longer representative” of the mid-capitalization space.

/zigman2/quotes/201364537/composite CHK 13.01, -0.30, -2.25%

MKM’s Gerdes cut his rating to sell from neutral, citing uncertainty over the viability of the oil and natural gas company capital structure given as energy prices continued to sell off. He slashed his stock price target to zero from $1.

“[W]e believe CHK shares should depreciate ~100% to $0 per share assuming a 17.5% equity discount rate,” Gerdes wrote in a note to clients. “At the Feb. 27, 2020 closing price of $0.26 per share, CHK’s implied equity return is nil.”

The share weakness and downgrade came despite the company removing the “going concern” warning from its latest filing of audited results with the Securities and Exchange Commission. It was that warning in early November that had knocked the stock price below a buck for the first time in 20 years.

The stock has lost 91% over the past 12 months, while the SPDR Energy Select Sector exchange-traded fund /zigman2/quotes/206420077/composite XLE -0.46%  has slumped 31% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.48%  has gained 3.9%.

/zigman2/quotes/201364537/composite
US : U.S.: NYSE
$ 13.01
-0.30 -2.25%
Volume: 925,723
May 29, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$130.21 million
Rev. per Employee
$4.37M
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/zigman2/quotes/209723049/delayed
US : U.S.: Nymex
$ 35.32
+1.61 +4.78%
Volume: 420,891
May 29, 2020 4:59p
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/zigman2/quotes/210189548/delayed
US : U.S.: Nymex
$ 1.84
+0.01 +0.71%
Volume: 192,732
May 29, 2020 4:59p
loading...
/zigman2/quotes/210599897/delayed
US : S&P US
1,763.95
-9.17 -0.52%
Volume: 829.77M
May 29, 2020 5:14p
loading...
/zigman2/quotes/206420077/composite
US : U.S.: NYSE Arca
$ 38.76
-0.18 -0.46%
Volume: 35.75M
May 29, 2020 4:00p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,044.31
+14.58 +0.48%
Volume: 4.38B
May 29, 2020 5:14p
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Tomi Kilgore is MarketWatch's deputy investing and corporate news editor and is based in New York. You can follow him on Twitter @TomiKilgore.

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