At Chesapeake Energy Corporation (NYSE:CHK) cash has been in the red for a long time, but one former analyst believes that will change very soon. In fact, the company does need to become cash flow positive because sooner or later, investors will tire of hearing that it will do it at some point in the future.
Seeking Alpha contributor Long Player noted that Chesapeake Energy cash has been flowing out as soon as it flows in, even though the company used less cash than it did last year. The author expects approximately $1 billion in cash flow from the energy company in the second half of this year, although of course there is still the risk that management will find even more one-time items to spend it on. He describes Chesapeake’s current management as “spending money like it is on an eternal shopping spree.”
The former analyst also examined Chesapeake’s debt schedule and noted that it looks much better than it has in a long time. Additionally, the prices for the company’s bonds and preferred stock do not suggest that the market is worried about its cash position.
It certainly seems like insiders at Chesapeake Energy believe in it because regulatory filings show that they’ve been snapping up more shares as the stock has fallen. This is always a good sign, although it’s also good that some big-name institutional investors are in Chesapeake Energy, such as BlackRock, Vanguard, State Street and Southeastern Asset Management.
Long Player vaguely referenced research which suggests that when institutional ownership gets as high as it has gotten at Chesapeake Energy, it could be a bearish signal for the company. What he’s referencing sounds like it has to do with crowded trades, although he also notes that many investors look at the holdings of institutions when deciding which stocks to buy.
Oil prices have been benefiting Chesapeake Energy stock, and prices bounced around on Friday after OPEC didn’t recommend that the recent oil cuts should be extended. The group has been capping supply since late 2016 and has said it would do so through March 2018.
Eventually, oil futures prices managed to hold on to a slight gain for the week. November West Texas Intermediate crude rose by 1 cent to $50.56 a barrel at the New York Mercantile Exchange on Friday after reaching a four-month high on Wednesday. November Brent crude tacked on 38 cents on the ICE Futures Europe exchange on Friday, bringing it to $56.81 a barrel.
After the OPEC meeting affected oil prices on Friday afternoon, Chesapeake Energy stock rose by approximately 1%, touching $4.22 a share.