Chesapeake Energy Corporation (CHK Stock Report) is currently one of the most interesting penny stocks to watch right now. That’s due to the dichotomy between the company’s current operations and its stock price. Chesapeake Energy stock is priced at only $2 but the scale of the business is not what one will typically associate with a penny stock.
The oil and gas drilling company has access to some of the most lucrative shale oil areas in the United States. As of 2019, the company wants to raise its oil production by as much as 32%. In 2020, it is targeting a rise of 29%.
In such a situation, there’s no surprise that it might be on the radar of many investors who are looking to make money with penny stocks. Keep in mind that the reason behind its low stock price is its debt mountain of $10 billion. Therefore, Chesapeake Energy’s success may be too intimately tied to the price of oil. As such, investors need to be careful when putting this on their list of penny stocks.
A Penny Stock Morgan Stanley Is Optimistic About
Devin McDermott, an analyst at Morgan Stanley, has been rather optimistic about the potential of the company. In June, he stated that Chesapeake is now in a strong position to bring down its debt. Additionally, the company could also be selling some of its assets in order to offset the debt.
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The analyst classified the energy penny stock as overweight and assigned a target price of $2.75, which reflected a 40% upside at the time. Currently, CHK stock price is trading below $2 per share. But shareholders in Chesapeake have not been thrilled with the company’s decision to buy WildHorse Resource Development Corp. It is an oil producer based out of Houston.
That being said, things might now be looking up, if McDermott is to be believed. The company has moved from its dependence on natural gas to oil. Due to the shift in the strategy, the company could generate higher margins. McDermott has said that the company will break even by 2023. Furthermore it went on to say that there is a plan to reduce debt at Chesapeake, but the capital markets are not quite buying it yet.
