Hold-Rated EnCana Target Upped

We are maintaining our Hold rating on EnCana Corp. (ECA - Analyst Report) shares ahead of second-quarter results, while raising our estimates and price target. Recently, EnCana added significant acreage in Haynesville Shale and the Horn River Shale, two of the most promising shale plays in North America.

These and other early-stage plays have the potential to meaningfully add to the company’s strong portfolio of natural gas assets. We also think that EnCana’s recent proposal to split into two entities will enhance shareholder value. However, we believe these positives are already reflected in current valuation, especially following the stock’s recent strong run up.

On June 25, EnCana announced the purchase of 89,500 acres in northwestern Louisiana. On June 16, EnCana said that it had accumulated a total of 325,000 net acres of natural gas and oil leaseholds in the Haynesville Shale in Louisiana and Texas. The company reported better-than-expected first-quarter 2008 recurring earnings of $1.39 per diluted share.

EnCana’s resource plays continue to provide excellent performance. During the most recent quarter, the company’s natural gas production was up 10% to 3.7 Bcf/d, driven by growth in the key resource plays.

This strongly positions EnCana to achieve its full-year guidance of 3.8 Bcf/d. EnCana has built considerable land positions in different emerging shale plays, which add significant depth to its strong portfolio of natural gas assets across North America. Strong recent results have helped the company’s cash flow outlook with free cash flows for 2008 expected to be exceed $2 billion.

EnCana also expects to generate an estimated $500 million from divestitures in 2008. EnCana plans to continue returning free cash flow to shareholders through an ongoing program of dividend increases and share purchases. Recently, the company doubled its quarterly dividend to $0.40 per share.

Read the full analyst report on ECA