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

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Bringing in pleasant news for investors, Encana Corporation (ECA - Free Report) 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 - Free Report) , Archrock, Inc. (AROC - Free Report) and NuStar Energy L.P. (NS - Free Report) , 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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