Additionally, the company will continue to invest aggressively in original content (Netflix’s own production), which accounted for ~5% of the total viewership during 2013. Netflix will release at least six original shows, starting with House of Cards, Arrested Development, Orange is the New Black, Derek, etc. Netflix’s past experience with original content has been good. I feel that with the increasing tilt towards original content, its strategy to evolve as a complete service provider is on track. Looking at the strong content deals and the streak of original contents by Netflix I feel that it will be able to increase the number of subscribers domestically and the stock will gain some momentum.
Chesapeake Energy Corporation (NYSE:CHK)
The announcement of the stepping down of CEO Mr. Aubrey McClendon could lead Chesapeake Energy towards a more aggressive asset restructuring program compared to the previous expectations. In mid-2012 it was revealed that McClendon borrowed ~$1.1 billion from the company in the last three years and did not disclose this fact to investors. I believe that now a segment of investors who were earlier hesitant to invest in the company due to the concerns regarding corporate governance might take a second look at it, creating a slightly improved investor base.
With the exit of McClendon the asset sale is expected to accelerate to ~$19 billion in the year 2013. The change in leadership may give the restructuring plan a boost. Earlier Chesapeake’s strategy was to bring its debt under control by selling its non-core upstream and midstream assets. However, now it is expected that the new leadership can bring in a more effective plan of action. The company targets to repay ~$9.5 billion of debt by the end of 2013 to strengthen its otherwise shaky balance sheet. In 2012 under the asset sale program it sold most of its midstream assets, and the remainder of it will be sold by the end of 1Q 2013. In the future, I also see the sale of assets like Miss Lime, Northern Eagle Ford, Chitwood Knox, and some other non-core assets.
Looking into the negative side, this whole drama of the departure of the CEO may result in a liability of ~$53 million to the company to be paid as compensation to him. Moreover, the increase in the sale of assets may affect the overall profitability and revenue generation capacity of the company, resulting in a low free cash flow in the coming year. Considering all this, until any further information is obtained from the company I will stick to a hold call for this stock.
CVR Energy, Inc. (NYSE:CVI)
CVR represents ~23% of Carl Icahn’s portfolio. This second largest investment by the billionaire is relatively new, as most of it was made in 2012. He raised his investment in the company by ~465% in the second quarter of 2012, and it has been a good ride since then. In the end of January 2013, the CVR Energy traded at its best because the company declared a special dividend and a new quarterly dividend policy.
