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Chesapeake (CHK): What's in Store This Earnings Season?

Chesapeake Energy Corp. CHK is slated to report first-quarter 2016 results on May 5, 2016, before the opening bell.

In the preceding three-month period, the company reported a positive earnings surprise of 5.88%. Coming to earnings surprise history, Chesapeake beat estimates in all of the last four quarters.

Let’s see how things are shaping up prior to the announcement.

Earnings Whispers

Our proven model shows that Chesapeake is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +9.09%. This is because the Most Accurate estimate stands at a loss of 10 cents, while the Zacks Consensus Estimate is pegged lower at a loss of 11 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Chesapeake carries a Zacks Rank #3 (Hold), which when combined with positiveEarningsESP, makes us confident about an earnings beat.

Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement. 

Factors Likely to Affect Earnings

Chesapeake announced a cut in its 2016 capital spending. This should help it in improving cash flow as the pricing weakness continues to weigh on financials. Despite the 57% investment cut, however, Chesapeake expects production to fall only marginally from that in the last year.

The company intends to make remarkable cost-cut efforts and foresees efficiency gains in its core operating areas. Chesapeake has the deepest inventory in the preeminent part of the Utica as well as some of the finest locations in the Eagle Ford and Marcellus. These are likely to help the company achieve its target.

Also, Chesapeake is on track with its plan of reducing long-term debt by monetizing its assets and cutting lease-hold spending. This monetization initiative is intended for coping with the mounting debt level as well as to fill the funding gap for its expenditures due to volatile natural gas prices.

Stocks to Consider

Though an earnings beat looks uncertain for Chesapeake, here are some companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

DCP Midstream Partners LP DPM has an Earnings ESP of +9.52% and a Zacks Rank #2. The company is slated to release earnings on May 4.

Enable Midstream Partners, LP ENBL has an Earnings ESP of +21.05% and a Zacks Rank #2. The company is slated to release earnings on May 4.

Hercules Offshore, Inc. HERO has an Earnings ESP of +15.24% and a Zacks Rank #2. The company is slated to release earnings on May 4.


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