ENCANA CORP. $23 - New York symbol ECA

ENCANA CORP. $23 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 741.0 million; Market cap: $17.0 billion; Price-to-sales ratio: 2.6; Dividend yield: 1.2%; TSINetwork Rating: Average; www.encana.com) focuses on six core properties: Montney (B.C.), Duvernay (Alberta), DJ Basin (Colorado), San Juan Basin (New Mexico); Tuscaloosa Marine Shale (Louisiana) and Eagle Ford (Texas).

These areas contain large amounts of oil and natural gas liquids, such as butane and propane. That cuts Encana’s exposure to weak natural gas prices. The company recently set up PriarieSky Royalty Ltd. (Toronto symbol PSK) as a new firm to hold its Clearwater properties in southern Alberta. PriarieSky doesn’t drill wells or explore for new reserves. Instead, it collects royalties from other oil and gas producers.

Encana sold 46% of PrairieSky to the public for $1.5 billion. In the future, it could hand out its remaining 54% stake to its investors as a special dividend.

The company is also selling less important properties. That’s why its gas output (86% of the total) fell 8.1% in the quarter ended June 30, 2014. However, oil and liquids production (14%) jumped 43.3%. Without unusual items, Encana’s earnings fell 30.8%, to $171 million from $247 million a year earlier.

Per-share earnings declined 32.4%, to $0.23 from $0.34, on more shares outstanding. Cash flow per share slipped 1.1%, to $0.89 from $0.90, while revenue fell 20.0%, to $1.6 billion from $2.0 billion.

The stock is up 29% since Encana said it would increase its oil production in November 2013. Even so, it trades at a moderate 12.9 times the company’s projected 2014 earnings of $1.78 a share and 6.9 times its projected cash flow of $3.31 a share. The $0.28 dividend yields 1.2%.

Encana is a buy.

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