Why Encana (ECA) Stock Is Higher Today

NEW YORK (TheStreet)----Shares of Encana (ECA) rose 3.47% to $23.28 after announcing that it will sell the remainder of its stake in PrairieSky Royalty to an underwriting group through a C$2.6 billion ($2.4 billion) secondary offering.

The Calagary-based company will sell 70.2 million shares of PrairieSky at $36.50 each, 30% above what investors paid in the June IPO. and expects to close the deal on September 26.

Encana raised $1.67 billion in the PrairieSky IPO in June, almost twice what it anticipated. The shares were sold at $28 each and immediately spiked, and the deal was the largest IPO in Canada in over 14 years, according to the Globe and Mail.

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Encana's decision to sell the stake so shortly after the IPO was a surprise, however, the market has been very receptive to the equity financing, analyst David Meats of Morningstar (MORN) told the Globe And Mail.

TheStreet Ratings team rates ENCANA CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ENCANA CORP (ECA) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has increased to $767.00 million or 38.44% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -5.22%.
  • ENCANA CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ENCANA CORP turned its bottom line around by earning $0.31 versus -$3.79 in the prior year. This year, the market expects an improvement in earnings ($1.72 versus $0.31).
  • The gross profit margin for ENCANA CORP is rather high; currently it is at 52.58%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ECA's net profit margin of 17.06% compares favorably to the industry average.
  • Compared to its closing price of one year ago, ECA's share price has jumped by 31.13%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 62.9% when compared to the same quarter one year ago, falling from $730.00 million to $271.00 million.
  • You can view the full analysis from the report here: ECA Ratings Report.
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