Chesapeake Energy Corporation (NASDAQ:CHK) Analysts Are More Bearish Than They Used To Be

The analysts covering Chesapeake Energy Corporation (NASDAQ:CHK) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the latest downgrade, the eight analysts covering Chesapeake Energy provided consensus estimates of US$5.3b revenue in 2023, which would reflect a concerning 63% decline on its sales over the past 12 months. Statutory earnings per share are supposed to dive 84% to US$5.91 in the same period. Prior to this update, the analysts had been forecasting revenues of US$6.3b and earnings per share (EPS) of US$10.85 in 2023. Indeed, we can see that the analysts are a lot more bearish about Chesapeake Energy's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for Chesapeake Energy

Despite the cuts to forecast earnings, there was no real change to the US$126 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Chesapeake Energy analyst has a price target of US$155 per share, while the most pessimistic values it at US$105. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 63% by the end of 2023. This indicates a significant reduction from annual growth of 0.8% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue decline 5.8% annually for the foreseeable future. So it's pretty clear that Chesapeake Energy's revenues are expected to shrink faster than the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Chesapeake Energy after the downgrade.

That said, the analysts might have good reason to be negative on Chesapeake Energy, given its declining profit margins. For more information, you can click here to discover this and the 3 other warning signs we've identified.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.