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Why Chesapeake Energy Corporation's Stock Slumped 18.5% in February

A natural gas field during winter at sunset.

What happened

Shares of Chesapeake Energy Corporation (NYSE: CHK) tumbled last month, falling nearly 19% even though the company posted better-than-expected fourth-quarter results and production guidance for 2018.

So what

Chesapeake Energy sold off after unveiling its fourth-quarter production update in early February, hitting its lowest level in two years after posting production volumes that came in below expectations. That poor report prompted an analyst from Credit Suisse to cut the bank's production forecast for Chesapeake in both 2018 and 2019 while maintaining its underperform rating and $3 price target on the natural gas stock.

A natural gas field during winter at sunset.

Investors gave Chesapeake a chilly reception last month. Image source: Getty Images.

That said, Chesapeake Energy would go on to report surprisingly strong fourth-quarter results a few weeks later, pulling in $314 million, or $0.30 per share, of adjusted net income, which beat the consensus estimate by $0.06 per share. The company achieved that aim by cutting costs and benefiting from higher oil and gas prices. Meanwhile, the company said that production would rise 1% to 5% this year even though it expects to cut capital spending by 12%, which was above its prior view that output would be flat with 2017. This news sent Chesapeake Energy's stock rocketing.

However, not all analysts thought Chesapeake's results justified a big rally, with Bernstein, for example, saying it could "not rule out a short squeeze " as the catalyst for the surge. Further, it noted that Chesapeake plans to sell another $500 million in assets this year, which will take away earnings, not create value for investors.

Now what

While Chesapeake Energy's fourth-quarter results and 2018 view came in ahead of expectations, the company still has a long road to recovery ahead of it. The biggest obstacle remains the nearly $10 billion of debt on its balance sheet, which hasn't budged from the end of 2016. While the company plans to sell some more assets to chip away at its debt pile this year, it's well behind the top natural gas stocks , which all boast stronger balance sheets and enhanced growth prospects.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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