Encana engages in the development, exploration, production, and marketing of natural gas and oil in Canada and the U.S.
The firm met with CEO Doug Suttles in Europe recently. The company is focused on growing cash flow per share, not production, and that its strategy of shifting to higher margin production can drive growth in cash flow even at flat commodity prices, analysts said.
Other key points are that the 2015 capital program is fully funded through cash flow and completed divestitures, Encana will prudently manage its balance sheet with a focus on maintaining its investment grade rating and is continuing to drive efficiency gains and cost reductions, according to the analyst note.
However, analysts lowered the company's price target to reflection the reduction in their estimates, but still believe that the valuation has become "highly compelling," they added.
In Friday's early morning trading session, shares are falling 1.11% to $11.63.
Separately, 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 largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is somewhat low, currently at 0.80, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.01, which illustrates the ability to avoid short-term cash problems.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, ENCANA CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- Net operating cash flow has decreased to $482.00 million or 48.88% when compared to the same quarter last year. Despite a decrease in cash flow of 48.88%, ENCANA CORP is in line with the industry average cash flow growth rate of -53.28%.
- 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 1571.6% when compared to the same quarter one year ago, falling from $116.00 million to -$1,707.00 million.
- You can view the full analysis from the report here: ECA Ratings Report