Update: Chesapeake Earnings

| About: Chesapeake Energy (CHK)


The company beat 2Q top line consensus but missed on the bottom line.

We still have a long-term bullish thesis on the company given its attempt to rightsize spending.

We didn’t anticipate the recent earnings miss but welcome the buying opportunity it has brought.

Chesapeake Energy (NYSE:CHK) managed to post 2Q earnings of $0.36 a share (missing $0.44 consensus) and revenues were $5.15 billion (topping $4.67 billion consensus). For the quarter, average production was up 13%, but the EPS miss was a result of a loss on repurchased debt securities and lower natural gas liquid prices.

Shares are down a couple percent since earnings. But on the plus side, the company increased its midpoint guidance for 2014 daily production, having upped it by 1.5%.

Since our latest installment on Chesapeake back in November, shares are down 3%. As we noted back then,

We'd also argue that the company's fickle spending policy is just what a levered, asset rich, company like Chesapeake needs. CEO Lawler has a strategy of spending only as much money as the company makes. Lawler has also stripped the company of excess spending. This includes getting rid of the company's gardener and weatherman.

Despite increasing full year production outlook, it's leaving its capital budget steady. Total CapEx for 2Q was actually down 27% y/y. But, even with this, Chesapeake still trades at a cheaper valuation than before. Its P/B is 1.27x and its forward P/E is 11.3x.

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