Exploration and production company Encana Corporation (ECA) touched a 52-Week high of $22.17 per share on April 3, 2014. The company managed to maintain this price the following day as well. Over the past 3 months, the stock has appreciated over 26%, supported by robust trading volumes.
Encana’s strategy to shift focus from the weakly priced natural gas market to the more lucrative oil-linked assets seems to have gone down well with investors. The company’s focus on the five core liquid rich plays – Montney, Duvernay, DJ Basin, San Juan and Tuscaloosa Marine shale – should be key production drivers in 2014.
In keeping with this strategy, Encana recently announced the sale of its Wyoming assets, comprising natural gas properties in the Jonah field.
The proceeds from Encana’s strategy of disposing high cost, low profit generating assets that do not fit into its long-term growth should also come in handy in strengthening its balance sheet.
Further, the significant upward revision in the Zacks Consensus Estimate is an indicator of the bullish sentiment. In the past one month, 5 estimates have gone higher against just one lower, pegging the current quarter estimate at 41 cents per share from the earlier 23 cents. The current year estimates are also moving north and have increased from 94 cents per share to $1.01 per share in the same time frame.
However, the company still has a substantial natural gas exposure that could prove detrimental in the depressed market. Moreover, Encana’s substantially high leverage and a debt-to-capitalization ratio of 58.1% (as of Dec 31, 2013), should also be kept in mind while making investment decisions.
Calgary, Alberta based Encana currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.
Meanwhile, one can consider better-ranked players from the industry such as Range Resources Corporation (RRC), World Point Terminals, LP (WPT) and EOG Resources, Inc. (EOG). While Range Resources sports a Zacks Rank #1 (Strong Buy), World Point Terminals and EOG Resources hold a Zacks Rank #2 (Buy).
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