ENCANA CORP. $17 (New York symbol ECA;Conservative Growth Portfolio, Resources sector;Shares outstanding: 735.5 million; Market cap: $12.5billion; Price-to-sales ratio: 2.9; Dividend yield: 4.7%;TSINetwork Rating: Average; www.encana.com) is amajor North American natural gas producer that isincreasing its oil output.
In the quarter ended March 31, 2013, Encana’s oilproduction rose 48.5%, to 43,500 barrels a day from29,300 a year earlier. Encana expects to increase its oilproduction to 70,000 to 75,000 barrels a day by theend of 2013. It sold some of its U.S. gas properties in2012, so gas production fell 12.1% in the quarter. Gasstill accounted for 92% of Encana’s output.
Due to lower oil and gas prices, Encana’s earningsfell 25.4%, to $179 million from $240 million a yearearlier. Earnings per share declined 27.3%, to $0.24from $0.33, on slightly fewer shares outstanding.These figures exclude several unusual items, particularlygains related to hedging. Cash flow per share fell43.2%, to $0.79 from $1.39. Revenue declined 41.1%,to $1.1 billion from $1.8 billion.
Encana continues to expand its hedging program,which helps shield it from volatile gas prices. For therest of 2013, the company has hedged 53% of its expectedproduction at $4.39 per thousand cubic feet.That’s 18.0% higher than today’s price of $3.72. For2014, Encana has hedged 51% of its forecast productionat $4.19 per thousand cubic feet.
The company is selling some less-important properties,which will hurt its earnings. As a result, the stocktrades at a high 20.2 times Encana’s projected 2013earnings of $0.84 a share. However, it trades at a morereasonable 4.9 times its likely cash flow of $3.50 ashare. The $0.80 dividend yields 4.7%.
Encana is a buy.
