Why Chesapeake Energy Corporation's Stock Tumbled Another 11.6% in January

Why Chesapeake Energy Corporation's Stock Tumbled Another 11.6% in January

What happened

Chesapeake Energy Corporation (NYSE: CHK) limped into 2018 after its stock plunged more than 40% last year due to its continued financial troubles. Shares of the natural gas producer haven’t fared any better this year, slumping another 11.6% last month, according to data provided by S&P Global Market Intelligence . Driving the latest sell-off was the announcement that it’s slashing its workforce to cut costs.

So what

At the end of January, Chesapeake Energy said it would lay off about 13% of its workforce. It’s doing so after selling a quarter of its wells in the past two years to raise cash so that it could repay debt. By selling off those wells, it’s significantly shrunk its size and no longer needs as many employees to support its efforts going forward. These job cuts will reduce costs so the company can stay afloat while continuing to work on ways to turn around its struggling business.

A drilling rig with a colorful sky behind it.

Image source: Getty Images.

Chesapeake Energy had hoped to strengthen its financial situation so that it could return to growth mode last year. However, it ran into an unexpected headwind from Hurricane Harvey, which caused production to fall 15% in the third quarter. Additional headwinds appear set to hold it back again this year — it anticipates that output to be flat to modestly higher, which was well below the 7% growth that analysts expected. That tepid outlook is another reason why the company no longer needs as many employees and shows how far it remains behind the competition, many of whom can deliver high-octane growth in the current environment.

Now what

Chesapeake Energy still has a long way to go before it can generate the returns-driven growth of its stronger rivals. That’s why investors should steer clear of this troubled natural gas stock and consider one of the top-tier producers instead.

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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.

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