Thomas Ryan, a member of the Board of Directors at Chesapeake Energy Corporation (NYSE:CHK), directly purchased 5,000 shares of stock on June 11th at an average price of $21.51 per share. This doubled his holdings of Chesapeake Energy Corporation (NYSE:CHK). We track insider purchases because studies show that stocks bought by insiders tend to narrowly outperform the market on average (read our analysis of studies on insider trading). While we don’t recommend imitating every insider purchase, we think that they can be treated similarly to stock screens with investors doing further research on any interesting names which come up though reviewing recent buys. Ryan, interestingly, had been criticized earlier this month for serving as CEO of Service Corp. International and sitting on other Boards of Directors, with two proxy firms claiming that he is not focused enough on providing oversight for Chesapeake Energy Corporation (NYSE:CHK)’s management.
Chesapeake Energy Corporation (NYSE:CHK)’s CEO departed earlier this year; billionaire activist Carl Icahn (see Icahn’s recent stock picks) had taken a large stake in the company in 2012 following a crisis at the company related to the CEO’s business activities and a potential cash shortfall. A number of asset sales have placed Chesapeake on firmer footing, and revenue grew by 42% last quarter compared to the first quarter of 2012. While costs also rose the company managed to report a small profit and cash flow from operations was over $900 million (though this was still not enough to cover Chesapeake Energy Corporation (NYSE:CHK)’s capital expenses).
Wall Street analysts expect adjusted earnings per share of $1.49 this year, which makes for a current-year P/E multiple of 14. Growth in EPS next year means that the stock is trading at only 10 times forward earnings estimates. Those figures likely assume some increase in natural gas prices, but they also represent a discount to where the sell-side places some other natural gas focused companies. In addition to Icahn, Southeastern Asset Management- managed by billionaire Mason Hawkins- was a major owner of Chesapeake with over 89 million shares in its portfolio at the end of March. Southeastern had in fact recommended Ryan as a potential Board member at the company.