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Chesapeake Energy (NYSE:CHK) is among the most widely followed energy companies in the U.S. Established in 1989, the Oklahoma-headquartered company is primarily engaged in the natural gas and oil development in North America. The company holds substantial interests in several natural gas resource basins, as well as liquids-rich resource plays. As of the last quarter, it had interests in more than 45,000 wells across U.S. Since reaching its local peak of $35 in late June, Chesapeake keeps going down. The stock lost 21% this year alone. The annual return of -45% has significantly lagged broad market indices.

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(Source: Finviz.com)

A recent report suggests that Chesapeake Energy CEO McClendon has borrowed more than a billion dollar to invest in new oil wells. His shares were used as collateral. McClendon's move reminds me of the character, Thomas 'Doc' Durant, from the TV series Hell on Wheels. During his quest for constructing the Union Pacific Railroad (NYSE:UNP), Thomas Durant (CEO of Union Pacific) made a personal bet on railroad stocks. His bet turned to be a huge success, as he made billions in the market. I think McClendon's bold investment on his own company shows his confidence on the future of Chesapeake Energy. I also agree with him. The company's fundamentals look strong. If the natural gas prices in the U.S. catch up with the rest of the world, Chesapeake could be the next Exxon (NYSE:XOM).

I am a big fan of natural gas. It is cleaner, cheaper, and relatively abundant in North America. While vehicles running on liquid natural gas are uncommon in the U.S., almost every gas station in Europe offers liquid natural gas as an alternative energy supply to automobile users. Europe itself does not have many resources. In fact, a dominant portion of gas is imported from Russia. On the contrary, U.S. has an abundance of natural gas reserves, but they are significantly under-utilized. In the long-term, I think there is a high possibility of an intercontinental pipeline between Europe and North America. This will help Europeans to diversify their energy sources, while utilizing the natural gas reserves in the U.S. and the Canada.

T. Boone Pickens also bullish on the future of natural gas, as he states:

We should continue to pursue the promise of electric or hydrogen powered vehicles, but America needs to address transportation fuel today. Fortunately, we are blessed with an abundance of clean, cheap, domestic natural gas.

(Source: Finviz.com)

Chesapeake is one of the top producers of natural gas. As such, the stock moves in par with natural gas prices. The U.S. Natural Gas ETF (NYSEARCA:UNG) is down by 44% in this year alone. It is quite hard to justify the decline in natural gas prices. UNG is one of the highest shorted ETFs in the market with a short float of 48%. Since the beginning of this year, it started gaining substantial attention among investors. The average trading volume is around 10 million shares, which sometimes goes up to 20 million. It is hard to justify the 100% upside move of another natural gas play, Cheniere Energy (NYSEMKT:LNG) while Chesapeake is down by 21% since January. I think there is something fishy going on in the natural gas-related stocks, but it is too early to suggest a conclusion about market efficiency yet.

(Source: Finviz.com)

Summary

Chesapeake is currently trading around $17, which suggests a trailing P/E ratio of 7.89. Forward P/E ratio is 6.1. Analysts estimate a modest earnings growth of 9.8%. Based on this estimate, my FED+ fair value model suggests a fair-value range of $37 - $58. The stock has at least 100% upside potential. Besides all other reasons, that is another reason to consider Chesapeake Energy as a solid buy. I think the stock is primed for a rebound, and it is ready to double.

Source: Chesapeake Energy: Ready To Double