This Is Why Chesapeake Energy Corporation's Stock Crashed 35% in May

What: After an initial post-earnings pop to start the month, it was all downhill for Chesapeake Energyin May, with its stock crashing 34.9%. That's after investors reacted negatively to a number of analyst notes as well as two debt-for-equity swaps the company completed last month.

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So what: Chesapeake Energy actually started the month off on a solid note, reporting in-line earnings and another asset sale. That sale brought in $470 million, putting the company on pace to hit its full-year target to complete $500 million to $1 billion in divestitures.

That said, while investors initially reacted positively to the news, leading to a 6% post-earnings surge, analysts saw reason for concern. Wells Fargo analysts suggested that investors remain on the sidelines for now, believing that the company still needed a transformative merger or acquisition transaction, higher gas prices, and/or additional deleveraging. Meanwhile, an analyst at Barclays said the stock was just worth $1 per share, suggesting that Chesapeake Energy was trading at an unwarranted premium to its peer group. That report fueled the stock's initial sell-off, with it dropping more than 20% after.

Credit Suisse piled on a few days later, saying it saw no reason to adjust its neutral rating nor its $4 price target, suggesting the stock had further to fall. It was worried about the $1.6 billion in debt the company has maturing next year.

In an effort to address those debt concerns, Chesapeake Energy completed two debt-for-equity exchanges during the month. In aggregate the company diluted current shareholders by 10% in exchange for 4% of its outstanding debt, including some of the debt due next year. That said, an analyst from Wunderlich said that despite these deleveraging events, there would be better opportunities to buy the stock later, implying that additional selling was on the horizon. That view was based upon Wunderlich's anticipation of more dilution, which would likely weigh on the stock.

Now what: Chesapeake Energy has taken investors on a wild ride this year, with its stock being cut in half before more than doubling off that bottom. That said, despite all that volatility, the stock is actually flat for the year. What this volatility shows is just how uncertain investors are right now, which is due to the fact that the company still needs to make additional debt reduction progress before they'll feel confident that its financials are on solid ground.

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