Stock Analysis: Encana (ECA)

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.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today Encana announced the acquisition of Athalon Energy.  Athalon is a relatively new energy company that was spun out from a private equity fund around a year ago.  It contains around 140,000 acres of land in the Permian Basin in Texas.  This is considered to be some prime land that was acquired, similarly to Encana's last purchase of poperty from Freeport McMoran.  Analyst response to today's purchase has been positive.  It puts the company well ahead of it's goals regarding how much oil/nat gas liquids they'll produce by 2016 - so much so that they'll reach their goal a year early.  The deal is expected to close at the end of 2014, so it should have no real impact to 2014 earnings.  This leaves my price target for 2014 still at $1.50  It does pose more intrigue for what their numbers will be for 2015, but I don't have a good look at that yet.  Hopefully I'll know more after the next earnings call towards the end of October.  The one thing this does seem to show is that natural gas is still not extremely profitable.  A nat gas company is striving to become more oily isn't exactly what I call a ringing endorsement for future growth.  Yes, this company is putting itself on the right path, but if I want big oil profits, shouldn't I have an oil company instead?  These are the thoughts I'll be continuing to work though into the next quarterly release and my future earnings expectations.  I believe this company has upside potential, but the question will essentially be how much?  For me, the stock is still a 3 with a price target of $25.