Is Chesapeake Seeing a Short Squeeze?

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In the two-week short interest reporting period that ended April 13, the company with the biggest change in short interest was Chesapeake Energy Corp. (NYSE: CHK). As of that date, 183.8 million shares were short. That’s about 20.5% of Chesapeake’s total float. Short sellers dumped 20.9 million shares from their positions during the period.

Since the end of February, short interest in Chesapeake has dropped by nearly 24 million shares, and nearly all of that came in the latest reporting period.

The company’s share price jumped in late February after Chesapeake reported higher production in the fourth quarter, along with the benefit of higher prices for oil and natural gas. But that didn’t keep the shorts from being interested in the stock.

Chesapeake’s share price has dropped about 8.8% since — not bad for the short sellers. However, the company is scheduled to report first-quarter 2018 results next Wednesday, and shorts who were a little late to the party around the beginning of March may want to cover now and come back after Chesapeake reports results.

Analysts are looking for earnings per share of $0.27, up from $0.23 in the 2017 first quarter, and revenues of $2.51 billion, down from $2.75 billion a year ago. Either or both of those estimates could easily be beaten, especially if Chesapeake was able to contain costs and get another boost from rising commodity prices.

Chesapeake once traded at around $70 a share, but the company’s strategy of taking on massive debt to acquire huge areas of drilling rights turned sour when natural gas prices dropped from above $10 per million BTUs to under $3. Now unable to “flip” the rights it had acquired, Chesapeake has been forced to sell off assets while trying to keep investing in the business and meet a crushing repayment schedule. That has led to Chesapeake’s becoming a highly volatile stock that trades an average of around 36 million shares a day, about a third more than Apple.

The stock traded up more than 1% Wednesday morning at $2.98, after closing at $2.94 on Tuesday. The 52-week range of the shares is $2.53 to $5.87, and the 12-month price target is $3.80.

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