Stock Analysis: Encana Corporation (ECA)
Notes:Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash
On Thursday, Encana announce their fourth quater and fiscal year earnings. As I stated the last time I discussed this stock, this quarter's earnings release could be a game changer and it appears as though that may be the case. Production levels were in line on $400M less capital spend to accomplish it, cash flows ended up a bit higher than expected on the year. For the quarter, earnings where at 31 cents per share, blowing away analyst estimates by 12 cents and helping beat my own annual earnings estimates by 10 cents. This is partly attributed to favorable pricing in natural gas and liquids as December was the start to what has been a very cold winter (As a Minnesotan, coldest in about 30 years), resulting in higher demand, more draw on reserves and higher daily prices. Indications have been that this trend continues well into the first quarter (which I again will attest to), so there is strong potential for beating on lowered expectations for the next quarter. Additionally, nothing has been changed for 2014 expectations in this call, which could only improve the ability to beat the quarter and potentially the year. Clearly cost cutting initiatives are under way and producing results. Capital expenditures are also being focused on higher margin areas, so even though the company may not produce as much, they should benefit more from their work. Oddly enough, the stock is actually priced lower than it was going into the earnings announcement. I will freely admit that the quarter was strong, estimates for 2014 should be raised based on likely price and hedging wins in the first quarter, and this turn-around seems to be effective so far. You must maintain long-term vision, though. This one quarter isn't enough to show true turn-around strength yet. As such, I'm considering adding a trade position with the results of the first quarter earnings as my selected catalyst and I'm upgrading the stock to a 2 overall. After these earnings, I have a feeling it'll be rare to see this stock dip below 18 and see more upside potential, than downside risk. The only question that remains is whether others see upside, or if this just trades sideways.