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Encana (ECA) Set to Beat Q4 Earnings on Crude Transition

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Canadian oil and natural gas producer Encana Corporation (ECA - Free Report) is scheduled to report its fourth-quarter earnings on Thursday, Feb 15, before market opens. The current Zacks Consensus Estimate for the quarter under review is a profit of 10 cents on revenues of $1,016 million.

In the preceding three-month period, the company reported operating earnings per share of 2 cents, missing the Zacks Consensus Estimate of 5 cents. Lower production led to the underperformance. Further, the bottom line declined from 4 cents per share reported in the year-ago quarter.

As far as earnings surprises are concerned, the Calgary, Alberta-based upstream operator is on a solid footing, having gone past the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below:

Encana Corporation Price and EPS Surprise


Encana Corporation Price and EPS Surprise | Encana Corporation Quote

Investors are keeping their fingers crossed and hoping that Encana surpasses earnings estimate this time too. Let’s delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

We believe that the improving oil price environment, a favorable shift in Encana’s product mix toward the commodity, and lower costs bode well.

Few years back, natural gas accounted for around 95% of Encana’s output. In the last reported quarter, the figure came down to 55%, chiefly due to a slew of acquisitions and divestitures since 2013 that has repositioned its asset base. The transition to crude – which are generally more profitable to churn out than natural gas because of higher price realizations – is a big positive for the company going into the fourth quarter.

As it is, benchmark crude oil prices have risen sharply over the past six months. At the end of the fourth quarter, oil was trading at around $60.42 per barrel – in a sweet spot compared to the corresponding period of 2016 when crude futures hovered around the $53 per barrel mark.

Encana’s successful cost reduction initiatives are expected to further buoy the results. To its credit, the company has been able to achieve a substantive decline in the operating cost structure. As a proof, Encana reported operating costs of $132 million in the third quarter, 9% lower than the year-ago quarter level.

What Does Our Model Say?

Our proven model too shows that Encana is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP for this company stands at +22.45%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Encana carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident of earnings beat.

Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Which Other Energy Companies Have Positive Surprise in Store?

Encana is not the only energy firm looking up this earnings season. Here are some companies from the space which, according to our model, also have the right combination of elements to post earnings beat this quarter:

Continental Resources, Inc. (CLR - Free Report) has an Earnings ESP of +0.68% and a Zacks Rank #1. The company is expected to release earnings results on Feb 21. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Energen Corporation has an Earnings ESP of +1.24% and a Zacks Rank #1. The company is anticipated to release earnings on Feb 20.

Keane Group, Inc. (FRAC - Free Report) has an Earnings ESP of +5.95% and a Zacks Rank #1. The company is likely to release earnings on Feb 26.

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