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Production Growth to Buoy Encana (ECA) This Earnings Season

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Encana Corporation (ECA - Free Report) is set to beat earnings estimates when it releases second-quarter 2019 results on Jul 31, before the opening bell. The current Zacks Consensus Estimate for the quarter to be reported is a profit of 18 cents on revenues of $1.75 billion.

The Calgary-based upstream player recorded better-than-expected results in the last reported quarter 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.

As far as earnings surprises are concerned, Encana is on an excellent footing, having surpassed the Zacks Consensus Estimate in each of the last four quarters, with average of 77.34%. This is depicted in the graph below:

Encana Corporation Price and EPS Surprise

Encana Corporation Price and EPS Surprise

Encana Corporation price-eps-surprise | Encana Corporation Quote

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by topping earnings estimates this time around as well. Encouragingly, our model also indicates that Encana may beat on earnings in the to-be-reported quarter.

Which Way are Top and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for second-quarter earnings per share has been downwardly revised by a penny in the past 30 days to 18 cents. This compares unfavorably with the year-ago reported earnings of 21 cents per share. The Zacks Consensus Estimate for revenues is pegged at $1.75 billion, suggesting an uptick from $983 million reported in the prior-year quarter.

Why a Likely Positive Surprise?

Our proprietary model shows that Encana is likely to beat earnings estimates in the to-be-reported quarter, as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +5.56%. This is because the Most Accurate Estimate for earnings is pegged a penny above the Zacks Consensus Estimate of 18 cents a share. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Encana currently carries a Zacks Rank #3. A Zacks Rank #3, when combined with a positive ESP, makes us confident of an earnings beat.

Conversely, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Setting the Tone

Following the $7.7-billion Newfield buyout, the upstream operator successfully repositioned the asset base, which bodes well for the firm’s upcoming results. The company is expected to realize benefits from production growth in its Core 3 liquids plays, namely Permian, Anadarko and Montney. This is likely to fuel second-quarter earnings. Output from the Anadarko Basin, inherited through the Newfield buyout, is expected to grow at a double-digit rate sequentially. Notably, the company expects second-quarter output in the band of 585-595 thousand barrels of oil equivalent per day (MBoe/d), higher than the year-ago reported figure of 337.9 MBoe/d.

Significant reduction in well costs and Newfield Buyout synergies are expected to generate operational efficiency, in turn giving a boost to its overall results in the to-be-reported quarter.

Other Stocks to Consider

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

Holly Energy Partners, L.P. (HEP - Free Report) has an Earnings ESP of +1.18% and is a #2 Ranked player. The partnership is anticipated to release second-quarter 2019 earnings on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

TransCanada Corporation (TRP - Free Report) is set to report second-quarter 2019 earnings on Aug 1. The stock has an Earnings ESP of +0.34% and a Zacks Rank #3.

Enbridge Inc. (ENB - Free Report) is set to report second-quarter 2019 earnings on Aug 2. The stock has an Earnings ESP of +8.88% and a Zacks Rank #3.

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