Natural gas company Chesapeake Energy has been a hot stock this year. Maybe that's why shares were lower Wednesday despite a strong earnings report.
Chesapeake (CHK) reported a profit that easily topped forecasts thanks to increased production and a rebound in natural gas and oil prices. Shares were up sharply in pre-market trading on the news and opened higher. But by midday, the stock was down nearly 2%.
What gives? Even though Chesapeake shares are up about 15% this year, investors may now be wondering if the company's turnaround is for real.
The Oklahoma City-based firm is still in the process of selling assets to satisfy investors who are worried about the company's cash position and debt load. Shares are still about 25% below where they were in April 2012. At that time, natural gas prices had started to fall. That ate into earnings.
Making matters worse, reports that former chairman and CEO Aubrey McClendon had borrowed against personal stakes in company wells created a controversy that ultimately led to McClendon leaving the company. Two prominent shareholders, Southeastern Asset Management and Carl Icahn, pressured Chesapeake into making changes on the company's board.
But with McClendon now out of the picture, some traders on StockTwits seem surprised that the market is acting as if Chesapeake is performing more like the Orlando Magic (this year's worst team in the NBA) than the Oklahoma City Thunder, the number 1 seed in the West who just so happen to play in the Chesapeake Energy Arena. (Although that Russell Westbrook injury may make it tough for the Thunder to return to the NBA Finals!)
The earnings report did look solid. And investors should be heartened by the fact that the worst may be over for natural gas prices.
So you can understand why some investors think the sell-off is an overreaction ... and that the company should be thinking more about growth again as opposed to asset sales ... especially since some investors question whether Chesapeake is getting the best value for those assets.
Chesapeake just completed the sale of properties in Pennsylvania's Marcellus Shale to Southwestern Energy (SWN) for just $93 million.
Several other traders felt that the stock's slump had little to do with the contents of the earnings report. And at least one trader was sensing an opportunity to buy more if the stock keeps dipping.
Good luck if you wind up buying around that level. The stock did briefly fall below $19 Wednesday morning before rebounding. But the 52-week low on this is $13.32. And one trader made a veiled reference to the McClendon controversy and the close-knit energy industry in Oklahoma City.
Ha! Ward is the CEO of SandRidge Energy (SD). He was a board member at Chesapeake a few years ago. Ward is now being targeted by hedge fund TPG-Axon, who think that he has been overpaid given the firm's relatively lackluster performance. It's eerily similar to what happened with McClendon at Chesapeake.
And it's a reminder to some investors that the sins from Chesapeake's past haven't been completely erased just yet.
Seven years ago, activist investor Carl Icahn spelled out a blueprint for breaking up media conglomerate Time Warner (TWX) into four separate entities.
With this week's decision by CNNMoney's parent company to spin off Time Inc., Icahn's prediction is finally coming true. But he won't be able capitalize on it. By late 2008, Icahn had completely sold his stake.
In 2006, Icahn pushed for Time Warner to essentially split itself into MOREMaureen Farrell - Mar 8, 2013 2:09 PM ET
Chesapeake Energy (CHK) announced a deal Monday to sell half of its oil and gas assets in northern Oklahoma to Sinopec, one of China's largest oil producers, for $1 billion.
Chesapeake's shares dropped nearly 5% as investors worried that the embattled Oklahoma City gas company sold the assets at a discount.
"There's been a concern that Chesapeake's weakened financial position would make them do deals at low prices," said Phil Weiss, an analyst MOREMaureen Farrell - Feb 25, 2013 11:39 AM ET
Shares of Herbalife (HLF) bounce back from a sharp drop Monday morning after the New York Post reported that the company is the subject of a federal investigation. Herbalife's stock fell nearly 13% shortly after the open but finished the day up more than 1%.
The investigation was revealed after the Federal Trade Commission disclosed a list of 192 complaints against Herbalife from the past seven years in response to a Freedom of Information Law request MOREHibah Yousuf - Feb 4, 2013 4:01 PM ET
Super Carl? Activist Carl Icahn has been racking up some pretty big wins in the past few weeks. Now, add Chesapeake Energy (CHK) to that list.
Chesapeake Energy's stock is up more than 6% Wednesday, following the company's announcement that its controversial CEO and founder Aubrey McClendon would step down immediately and retire on April 1, 2013.
Icahn was a key force behind McClendon's ouster. Early last year, investors discovered that MOREMaureen Farrell - Jan 30, 2013 12:43 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
My first reaction upon hearing the rumor Monday about Carl Icahn supposedly considering a stake in Hewlett-Packard was this: What took him so long?
HP (HPQ) has been a slow-motion train wreck for a while now. Shares MOREPaul R. La Monica - Dec 11, 2012 12:35 PM ET
Chesapeake Energy's troubles are far from over, but the company is doing what it can to regain favor with investors. The natural gas giant announced Monday that it is replacing four members of its board of directors, bowing to pressure from two of its largest shareholders, including Carl Icahn.
"We appreciate the Board's willingness to listen to shareholders and to respond appropriately," said Icahn in a statement, who in a letter to the MOREHibah Yousuf - Jun 4, 2012 11:58 AM ET
#StupidStock move of the day! $CHK up nearly 3% as the Icahn rumor just won't die. Even if he does invest, fundamentals look unappealing.
— Paul R. La Monica (@LaMonicaBuzz) May 25, 2012
It's official. Finally. Icahn discloses 7.56% stake in $CHK. Good luck, Carl.— Paul R. La Monica (@LaMonicaBuzz) May 25, 2012
Update! 4:08 p.m. Carl Icahn does own a piece of troubled Chesapeake Energy (CHK). It's official. He disclosed a 7.56% MOREPaul R. La Monica - May 25, 2012 4:08 PM ET
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