Encana (ECA) Beats on Q4 Earnings & Sales, Hikes Dividend

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Bringing in pleasant news for investors, Encana Corporation ECA managed to maintain its earnings-beat streak in the fourth quarter of 2018 on the back of increased production volumes and higher commodity price realizations.

 

The Canadian oil and natural gas producer reported fourth-quarter 2018 operating earnings per share of 32 cents, outperforming the Zacks Consensus Estimate of 12 cents. The bottom line also improved from the year ago income of 12 cents a share.

 

Moreover, quarterly revenues of $2,381 million increased 98% from fourth-quarter 2017 sales of $1,210 million. Further, the top line surpassed the Zacks Consensus Estimate of $1,400 million.

 

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.Notably, in the quarter under review, natural gas accounted for 52.3% of its total production. Production growth from its core assets—Permian, Montney, Eagle Ford and Duvernay—enabled the firm to deliver impressive year-over-year results.

 

Total fourth-quarter production came in at 403,400 barrels of oil equivalent per day (BOE/d) compared with 335,200 BOE/d in the prior-year period. Natural gas production increased 15% year over year to 1,265 million cubic feet per day and liquids production rose 26% to 192.7 thousand barrels per day.

 

Encana's realized natural gas price was $2.64 per thousand cubic feet compared with the year-ago level of $2.34. Further, realized oil price rose to $56.54 per barrel from $52.94 in the fourth quarter of 2017.

 

Total Costs & Capex

 

Total operating expenses increased to $1,027 million from the year-ago figure of $948 million. The rise is primarily attributed to an increase in depreciation and transportation charges, along with higher purchased products costs.

 

Encana's capital investments during the quarter were $349 million. In the full year, capex amounted to $1,975 million.

 

Dividend Hike, Reserve Growth

 

Boosting investors’ confidence, Encana hiked its quarterly dividend by 25%. The company declared a dividend of 1.875 cents per share (versus previous payout of 1.5 cents), payable on Mar 29 to its shareholders of record as of Mar 15.

 

On a further encouraging note, the company’s proved reserves totaled 1,215.7 million barrels of oil equivalent (52% liquids) as of Dec 31, 2018, marking 53% growth on a year-over-year basis.

 

Cash Flow and Balance Sheet

 

Encana’s cash from operating activities in the quarter under review came in at $559 million, recording an increase from the year-ago figure of $369 million. This helped the company generate $191 million of free cash flow.

 

As of Dec 31, 2018, cash and cash equivalents were $1,058 million, and long-term debt was $3,698 million. The debt-to-capitalization ratio came in at 33.2%.

 

2019 Guidance 

 

On Feb 13, 2019, Encana completed the acquisition of Newfield Exploration Company, which has provided the company with leading acreage in the Anadarko Basin.

 

For full-year 2019, Encana foresees capital expenditure at around $2.7-$2.9 billion versus $1.97 billion in 2018. About 75% of its capital outlay is likely to be directed toward the firm’s three core plays, i.e. Permian, Montney and Anadarko. Liquids output from these core plays is expected to grow 15% on a year-over-year basis in 2019. With liquids likely to account for more than half of the company’s total production in 2019, volumes are expected in the range of 300,000-320,000 barrels per day. Total output of the company is expected within 560,000-600,000 BOE/d.

 

Zacks Rank and Key Picks

 

Encana currently carries a Zacks Rank #3 (Hold).

 

Some better-ranked players in the energy space are Enbridge Inc. ENB, Archrock, Inc. AROC and NuStar Energy L.P. NS, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Enbridge’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, with the average positive surprise being 31.8%.

 

The 2019 Zacks Consensus Estimate for Archrock is 63 cents, representing 31.3% earnings per unit growth from the 2018 level. Next year’s average forecast is 78 cents, pointing to another 23.8% growth.

 

For 2019, the Zacks Consensus Estimate for NuStar is $1.10, representing 64.2% earnings per unit growth from a year ago. Next year’s average forecast is $1.32, pointing toward another 20.3% growth.

 

Zacks' Top 10 Stocks for 2019

 

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

 

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

 

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