Cenovus Energy Inc.

CANADIAN IMPERIAL BANK OF COMMERCE, $74.75, Toronto symbol CM, is buying the Canadian MasterCard credit-card business of U.S.-based Citigroup Inc. (New York symbol C). Right now, CIBC only issues Visa cards, so this purchase will diversify its credit-card business. The bank did not reveal the purchase price. However, the Canadian MasterCard business has $2.1 billion of outstanding credit-card loans. As of April 30, 2010, CIBC had $12.4 billion of credit-card loans outstanding. The bank expects to complete this purchase by October 31, 2010. It should add to CIBC’s earnings in the first year....

ENCANA CORP $32.40 (Toronto symbol ECA; Shares outstanding: 741.7 million; Market cap: $24.0 billion; SI Rating: Average; Dividend yield: 2.5%) took its present form on December 1, 2009. That’s when the old EnCana Corp. split itself into two separate companies. One is now called “Encana Corp.,” and focuses on unconventional natural gas. The other, Cenovus Energy Inc. (see below), specializes in oil-sands projects, oil refineries and conventional natural gas. If you assume the split occurred at the start of 2009, Encana’s earnings per share fell 22.2% in the three months ended March 31, 2010, to $0.56 from $0.72 a year earlier. (All amounts except share price in U.S. dollars.) These figures exclude several unusual items, such as gains on hedging contracts that Encana uses to lock in its selling price for natural gas. Cash flow per share declined 15.1%, to $1.57 from $1.85. Revenue fell 3.7%, to $3.5 billion from $3.7 billion....

TECK RESOURCES LTD., $43.77, Toronto symbol TCK.B, earned a record $908 million in the three months ended March 31, 2010. That’s up 276.8% from $241 million a year earlier. Earnings per share rose 206.0%, to $1.53 from $0.50, on more shares outstanding. One-time items, including the sale of two gold mines in Turkey and a one-third interest in a B.C. hydroelectric dam, boosted the company’s earnings in the latest quarter. Without one-time items, Teck’s earnings would have fallen 4.2%, to $205 million from $214 million. Teck’s cash flow per share fell 42.5%, to $0.70 from $1.22. However, its revenue rose 13.8%, to $1.9 billion from $1.7 billion, largely because of rising copper prices....

CENOVUS ENERGY INC., $29.16, Toronto symbol CVE, took its present form on December 1, 2009. That’s when EnCana Corp. split itself into two separate companies. One kept the EnCana name and “ECA” trading symbol, and focuses on unconventional natural gas. The other, Cenovus, specializes in oil-sands projects, oil refineries and conventional natural gas. Cenovus rose 2% this week. The gain was mainly in response to a big purchase in the Alberta oil patch: Chinese state-owned oil company Sinopec bought a 9.03% stake in the massive Syncrude oil-sands project for $4.65 billion U.S. The purchase price was roughly 20% higher than the consensus estimate. That helped draw investor attention to all oil-sands stocks, including Cenovus....

EnCana gets most of its natural gas from unconventional reserves. Accessing these reserves is complicated, but they have long lives and stable output. The company already has proven reserves to last 12 years or more. But its reserves will expand as it develops its 15.6 million acres of landholdings. EnCana’s cash flow depends on gas prices, which have been depressed due to higher gas production and the weak economy. However, the long-term outlook is positive. ENCANA CORP $35.13 (Toronto symbol ECA; Shares outstanding: 750.4 million; Market cap: $26.4 billion; SI Rating: Average; Dividend yield: 2.3%) owns natural-gas properties in Alberta, B.C., Colorado, Wyoming and Texas that account for 4% of North America’s daily production. These holdings include promising shale-gas properties in the Haynesville region in the U.S. southeast and B.C.’s Horn River area. Lower gas prices pushed down EnCana’s 2009 earnings by 32.2%, to $1.8 billion, or $2.35 a share. In 2008, it earned $2.6 billion, or $3.47 a share. (All amounts except share price in U.S. dollars.) Cash flow per share fell 20.9%, to $6.68 from $8.45....

CENOVUS ENERGY $26.16 (Toronto symbol CVE; Shares outstanding: 751.3 million; Market cap: $19.7 billion; SI Rating: Extra Risk; Dividend yield: 3.1%) holds the more aggressive assets from the EnCana split on December 1, 2009. Cenovus’ oil-sands projects, oil refineries and conventional natural gas remain profitable. But extracting oil from oil sands is a hugely capital-intensive enterprise. Oil sands projects can become unprofitable if oil prices fall. Cenovus earned $1.3 billion, or $1.74 a share, in 2009 (all amounts except share price in U.S. dollars). That’s down 19.5% from $1.6 billion, or $2.17 a share, in 2008. These figures exclude unusual items. Cash flow per share fell 20.0%, to $3.29 from $4.11....

CANADIAN TIRE CORP., $52.29, Toronto symbol CTC.A, fell 3% this week after the company reported lower-than-expected 2009 earnings. During the year, Canadian Tire earned $348.0 million, or $4.26 a share. That’s down 12.2% from $396.4 million, or $4.86 a share, in the prior year. These figures exclude several one-time items, including gains and losses on sales of securities by Canadian Tire’s finance division. The company also paid a penalty for redeeming debentures before their expiry date. That will let it take advantage of the improvement in the credit markets to issue new bonds at lower interest rates. Without these one-time items, analysts were expecting Canadian Tire to earn $4.34 a share. Revenue fell 4.8%, to $8.7 billion from $9.1 billion. Overall sales at the company’s main retail division, which consists of its Canadian Tire stores and the PartSource auto-parts chain, fell 2.8%, while same-store sales were 4.2% lower. Weak sales of electronics offset stronger sales of household-cleaning, kitchen and pet-care goods. As well, a lack of snow in Ontario and Quebec hurt sales of winter merchandise, such as snow shovels....

ENCANA CORP $36.15 (Toronto symbol ECA; Shares outstanding: 750.3 million; Market cap: $27.1 billion; SI Rating: Average; Dividend yield: 2.2%) focuses on unconventional natural gas. Its shares have moved up lately, along with higher gas prices spurred on by cold weather. CENOVUS ENERGY $27 (Toronto symbol CVE; Shares outstanding: 751.3 million; Market cap: $20.3 billion; SI Rating: Extra Risk; Dividend yield: 3.1%) specializes in oil-sands projects, oil refineries and conventional natural gas. Oil sands will need much higher oil prices to attract a lot of investor interest. Cenovus shares have moved sideways since the split from EnCana. EnCana is the more conservative of the two, with an SI Rating of Average. We see both as buys.

ENCANA CORP. $31 and CENOVUS ENERGY INC. $26 are now trading as separate stocks after EnCana split itself into two companies. One kept the EnCana name, and focuses on unconventional natural gas. The other operates as Cenovus Energy and specializes in oil-sands projects. Shareholders received one share in each of the two new firms for every EnCana share they owned. Investors should allocate 51.5% of their adjusted cost base to the new EnCana, and 48.5% to Cenovus. EnCana has moved up since the split, as cold weather has caused natural-gas prices to jump. As well, ExxonMobil’s purchase of natural-gas producer XTO Energy has fuelled speculation that EnCana’s smaller size will make it a takeover target. Best Buy. Cenovus has moved lower, as environmentalists demand more controls over oil-sands projects. However, its low-cost operations should help it pay for any new carbon-reducing equipment. Buy.

ENCANA CORP. $30 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 750.2 million; Market cap: $22.5 billion; Price-to-sales ratio: 2.1; Dividend yield: n.a.; SI Rating: Average) and CENOVUS ENERGY INC. $25 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 750.2 million; Market cap: $18.8 billion; Price-to-sales ratio: 1.1; Dividend yield: n.a.; SI Rating: Extra Risk) are now trading as separate stocks after EnCana split itself into two separate companies. One kept the EnCana name and trading symbol, and focuses on unconventional natural gas. The other operates as Cenovus Energy Inc. and specializes in oil-sands projects, oil refineries and conventional natural gas. Shareholders received one share in each of the two new firms for every EnCana share they owned. EnCana recommends that shareholders allocate 51.5% of their adjusted cost base to the new EnCana, and 48.5% to Cenovus. The two stocks could stagnate for some months while investors evaluate them. However, we see both as buys for long-term gains.