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Encana (ECA) Extends Hot Streak as Q1 Earnings Top Estimates

Nilanjan Choudhury

Encana Corporation ECA continued its trend of beating expectations and posted strong first-quarter 2019 profits. The Canadian oil and natural gas producer reported operating earnings of 14 cents per share, outperforming the Zacks Consensus Estimate of 10 cents. Encana delivered its sixth earnings beat in as many quarters on the back of increased production volumes and higher oil price realizations.

However, the bottom line fell from the year ago income of 16 cents a share due to lower natural gas sales price.

Meanwhile, quarterly revenues of $1.2 billion decreased 6% from first-quarter 2018 sales of $1.3 billion but surpassed the Zacks Consensus Estimate by 4%.

Encana Corporation Price, Consensus and EPS Surprise


Encana Corporation Price, Consensus and EPS Surprise | Encana Corporation Quote

Production and Prices

A few years back, natural gas accounted for around 95% Encana’s output. However, the company successfully repositioned its asset base and transitioned to the more profitable crude over a couple of years. As a proof, in the quarter under review, natural gas accounted for around 48% of its total production.

Total first-quarter production (Encana plus Newfield combined) came in at 566,600 barrels of oil equivalent per day (BOE/d) compared with 500,900 BOE/d in the prior-year period. Natural gas production increased 11.4% year over year to 1,644 million cubic feet per day and liquids production rose 14.8% to 292,700 BOE/d. Production growths from its core assets— Permian, Anadarko and Montney—enabled the firm to deliver impressive year-over-year results. In fact, first quarter output from these properties rose more than 20% year over year to 443,300 BOE/d.

Encana's realized natural gas price was $2.66 per thousand cubic feet compared with the year-ago level of $2.94. However, realized oil price rose to $57.34 per barrel from $55.74 in the first quarter of 2018.

Operating Expenses

Total operating expenses increased to $1.5 billion from the year-ago figure of $976 million. The rise is primarily attributed to an increase in depreciation transportation and operating costs, along with higher purchased products outlay.

Cash Flow and Balance Sheet

Encana’s cash from operating activities in the quarter under review came in at $529 million, recording an increase from the year-ago figure of $381 million. The company's capital investments during the quarter were $736 million, up from $508 million in the year-ago quarter. The higher capital expenditure meant that the company posted negative free cash flow of $314 million.

As of Mar 31, 2019, Encana had cash and cash equivalents were $479 million, and long-term debt was $6.3 billion. The debt-to-capitalization ratio came in at 37.8%.

Guidance Affirmed

Encana, which completed the acquisition of Newfield Exploration Company in February, reiterated its 2019 capital expenditure guidance of $2.7-$2.9 billion. Of the total, three-fourths will be dedicated toward the firm’s three core plays (Permian, Montney and Anadarko). Encana sees 15% liquids production growth from these regions.

Zacks Rank & Key Picks

Encana holds a Zacks Rank #2 (Buy).

Apart from Encana, investors interested in the the energy space could look at some other options like ProPetro Holding Corp. PUMP, Apache Corporation APA and TransCanada Corporation TRP that also sport a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The 2019 Zacks Consensus Estimate for Midland, TX-based ProPetro is $2.53, representing some 26.5% earnings per share growth over 2018. Next year’s average forecast is $2.80 pointing to another 10.5% growth.

Apache has a 100% track of outperforming estimates over the last four quarters at an average rate of 31.1%.

TransCanada has a 100% track of outperforming estimates over the last four quarters at an average rate of 14.8%.

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