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On Jul 6, Zacks Investment Research upgraded natural gas exploration and production (E&P) company, Encana Corporation (ECA - Analyst Report), to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Encana is one of the largest natural gas companies in North America with a diverse/high quality portfolio of natural gas assets spread over Canada and the U.S. This provides the company with a huge inventory of reserves and a resource base capable of robust production growth.

The operating environment and growth prospects seem bright for Encana, as reflected by the rising earnings estimates for the company. Over the last 60 days, the Zacks Consensus Estimate for the second quarter of 2013 rose 15.4% to 15 cents per share. For 2013, the Zacks Consensus Estimate advanced 3.7% over the same timeframe to 85 cents per share.

The momentum has been strong since Encana released its first-quarter earnings results on Apr 23, 2013. Earnings per share came in at 10 cents, exceeding the Zacks Consensus Estimate of 4 cents by 150.0%. The better-than-expected result was mainly backed by better drilling activities at prime areas such as the Peace River Arch region and the Clearwater area.

Additionally, we appreciate Encana’s strategy of disposing assets that do not fit into its long-term growth plan. The company’s divesture program includes the disposition of high cost yet low profit generating assets and a focus on asset base expansion that would render high returns.

Other Stocks to Consider

There are certain other firms in the E&P sector that are worth considering. These include Oasis Petroleum Inc. (OAS - Snapshot Report), PetroQuest Energy Inc. (PQ - Snapshot Report) and Sanchez Energy Corporation (SN - Snapshot Report). All three stocks carry a Zacks Rank #1 (Strong Buy).    

 

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