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Why Is Encana (ECA) Down 12.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Encana (ECA - Free Report) . Shares have lost about 12.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Encana due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Encana Q1 Earnings Beat on Robust Output Growth

Encana reported first-quarter 2019 operating earnings of 14 cents per share, outperforming the Zacks Consensus Estimate of 10 cents. Encana delivered its sixth earnings beat in as many quarters on the back of increased production volumes and higher oil price realizations.

However, the bottom line fell from the year ago income of 16 cents a share due to lower natural gas sales price.

Meanwhile, quarterly revenues of $1.2 billion decreased 6% from first-quarter 2018 sales of $1.3 billion but surpassed the Zacks Consensus Estimate by 4%.

Production and Prices

Total first-quarter production (Encana plus Newfield combined) came in at 566,600 barrels of oil equivalent per day (BOE/d) compared with 500,900 BOE/d in the prior-year period. Natural gas production increased 11.4% year over year to 1,644 million cubic feet per day and liquids production rose 14.8% to 292,700 BOE/d. Production growths from its core assets— Permian, Anadarko and Montney—enabled the firm to deliver impressive year-over-year results. In fact, first quarter output from these properties rose more than 20% year over year to 443,300 BOE/d.

Encana's realized natural gas price was $2.66 per thousand cubic feet compared with the year-ago level of $2.94. However, realized oil price rose to $57.34 per barrel from $55.74 in the first quarter of 2018.

Operating Expenses

Total operating expenses increased to $1.5 billion from the year-ago figure of $976 million. The rise is primarily attributed to an increase in depreciation transportation and operating costs, along with higher purchased products outlay.

Cash Flow and Balance Sheet

Encana’s cash from operating activities in the quarter under review came in at $529 million, recording an increase from the year-ago figure of $381 million. The company's capital investments during the quarter were $736 million, up from $508 million in the year-ago quarter. The higher capital expenditure meant that the company posted negative free cash flow of $314 million.

As of Mar 31, Encana had cash and cash equivalents were $479 million, and long-term debt was $6.3 billion. The debt-to-capitalization ratio came in at 37.8%.

Guidance Affirmed

Encana, which completed the acquisition of Newfield Exploration Company in February, reiterated its 2019 capital expenditure guidance of $2.7-$2.9 billion. Of the total, three-fourths will be dedicated toward the firm’s three core plays (Permian, Montney and Anadarko). Encana sees 15% liquids production growth from these regions.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.73% due to these changes.

VGM Scores

Currently, Encana has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Encana has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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