Buy Chesapeake: A Turnaround Energy Stock

We maintain our positive stance on Chesapeake Energy (CHK) after looking at its revenue of $3 billion, which beats the street estimate by approximately $600 million. Its earnings per share of $0.1 are in-line with the street's estimate. The company's cheap valuation, 10 key development areas in the U.S, dividend yield of near 2%, increasing cash flow generation capability and a shifting focus towards oil and liquid natural gas make it a strong prospect for investors. In our opinion, the company is on the right track towards strengthening its balance sheet position by significantly reducing its debt. For this purpose, the company has signed an agreement to sell non-strategic assets, comprising those of midstream and Permian Basin, and some other assets, for the amount of $6.9 billion. Moreover, according to the 34 analyst estimate, its earnings will grow up to 177 percent by the end of fiscal year 2013. We believe it's a great turnaround stock to hold in a portfolio in order to generate large profits going forward.

The stock is trading at a forward price to earnings of 14.7x, at discount when compared to Petroquest Energy's (PQ) forward price to earnings of 15.2x. Looking at some other important metrics, it is trading at a price to sales of 1.03x and an EV/EBITDA of 5.33x, at considerable discount when compared to its competitors. Therefore, we recommend investors to maintain their long position in the stock. Read more