Encana (ECA) Down 5.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Encana (ECA). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Encana due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Second-Quarter 2018 Results

Encana Corporation reported second-quarter 2018 operating earnings per share of 21 cents, outperforming the Zacks Consensus Estimate of 10 cents and the year-ago earnings of 18 cents.

The strong results are attributed to increased liquids production along with higher price realizations.

Quarterly revenues of $983 million missed the Zacks Consensus Estimate of $1,144 million and were lower than the prior-year figure of $1,083 million amid a decline in natural gas output.

Production & Prices

Of late, Encana has successfully repositioned its asset base and transitioned to the more profitable crude. Production growth from its core assets, namely Permian, Montney, Eagle Ford and Duvernay, led the company deliver impressive year-over-year results. The four core assets accounted for 96% of Encana’s total production. Permian and Montney liquids production recorded a year-over-year increase of 42% and 128%, respectively.

Total second-quarter production came in at 337,900 barrels of oil equivalent per day (BOE/d) compared with 316,000 BOE/d in the prior-year quarter.

Quarterly natural gas production declined approximately 4% year over year to 1,095 million cubic feet per day, while liquids production rose 24% from the prior-year quarter to 155.3 thousand barrels per day.

Encana's realized natural gas price was $3.03 per thousand cubic feet compared with the year-ago level of $2.56. Further, realized oil price also rose to $58 per barrel from $48.27 in the second quarter of 2017.

Costs & Expenses

Total operating expenses increased 44.22% from second-quarter 2017 to $1,099 million. The rise is primarily attributed to increase in depreciation and transportation charges, along with higher purchased products costs.

Dividend and Share Repurchase Program

On Jul 31, Encana declared a dividend of 1.5 cents per share payable on Sep 28, 2018 to shareholders of record as of Sep 14.

Encana is on track to buy back shares worth $400 million through 2018, with already repurchasing $200 million shares year-to-date.

Capex, Cash Flow and Balance Sheet

Encana's capital investments during the quarter were $595 million. The company’s cash from operating activities came in at $475 million, recording an increase of around 118% from the year-ago figure of $218 million. On a further encouraging note, the company updated its full-year cash flow margin from $14 per Boe to $16 per Boe. Encana now anticipates generating free cash flow (FCF) in this year itself, as against the prior expectation to generate FCFs in 2019.

As of Jun 30, 2018, cash and cash equivalents were $336 million and long-term debt was $3,698 million. The debt-to-capitalization ratio came in at 36.3%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -8.54% due to these changes.

VGM Scores

At this time, Encana has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Encana has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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