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Chesapeake (CHK) Sell-Off on "Margin Call McClendon" Could Provide a Great Entry

Posted by The Staff on Apr 18, 2012 1:35 PM

Chesapeake Energy's (NYSE: CHK) stock is down over 7 percent Wednesday following a Reuters news report that CEO Aubrey McClendon borrowed $1.1 billion against his stake in the company's oils and natural gas wells. Shareholder aren't taking too kindly to the news as this isn't the first time McClendon has been accused of putting his own interests ahead of shareholders.

During the height of the financial crisis he sold hundreds of millions in company stock after margin calls, giving investors plenty of reason to doubt McClendon.

In his defense, Chesapeake general counsel Henry Hood has stated that he does not believe the billion dollar loan represents a conflict of interest. While this might be true, considering today's sell off in Chesapeake stock, there is clearly a lack of confidence in McClendon.

But all may not be lost. Just yesterday a Jefferies analysts boosted his price target on Chesapeake from $29 to $30. He also boosted his FY12 EPS estimate to $2.35. The stock was trading at $17.66 intraday, $12.34 short of the Jefferies price target. A move north to the target represents a 70% gain. Further the firm's new EPS estimate suggests a multiple of just 7.5x.

Given this bullish take from the analyst, today's sell-off, valuation, and the fact that natural gas price could have finally hit a floor, investors may want to take a closer look at the stock.

Chesapeake is the 10th most popular stock on EasyStockAlerts.com

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