ENCANA CORP. $9.45 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 842.5 million; Market cap: $8.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.8%; TSINetwork Rating: Average; www.encana.com) continues to sell less important properties as it narrows its focus on four higher-margin projects: Montney (B.C.), Duvernay (Alberta) and Eagle Ford and Permian (Texas).
These sales cut its daily output by 21.0% in the three months ended June 30, 2015, to 388,700 barrels a day (67% gas, 33% oil and natural gas liquids) from 491,800 a year earlier. As well, the company’s realized gas prices, which include the benefit of hedging contracts, fell 13.7%, while oil prices dropped 37.0%.
As a result, Encana lost $167 million, or $0.20 a share (all amounts except share price and market cap in U.S. dollars). A year earlier, it earned $171 million, or $0.23. Cash flow per share dropped 75.3%, to $0.22 from $0.89, while revenue declined 47.7%, to $830 million from $1.6 billion.
Encana expects to spend $2.0 billion to $2.2 billion on new projects and upgrades in 2015, above its projected cash flow of $1.4 billion to $1.6 billion. The company plans to make up the shortfall with the $978 million it has received from asset sales. Job cuts and other cost cuts should save it an additional $375 million.
The sale proceeds and savings will also let it keep paying quarterly dividends of $0.07 a share, for a 3.8% annualized yield. In the first half of 2015, it paid out $107 million in dividends.
Encana’s long-term debt of $6.1 billion is a high 80% of its depressed market cap, but the company doesn’t have to start paying back these loans until 2019. It also holds cash of $496 million.
The stock trades at just 3.7 times Encana’s projected 2015 cash flow of $1.98 a share.
Encana is a buy.
