encana

It’s been nearly a year since the old EnCana Corp. split itself into two separate companies: one that focuses on unconventional natural gas (Encana), and one that specializes in oil-sands projects (Cenvous Energy). Shareholders received one share in each of the two new firms for every old EnCana share they held. The new Encana has suffered, mostly because of a recent drop in natural gas prices. As well, Cenovus has faced pressure from environmentalists who are opposed to oil-sands development. But the breakup helped unlock hidden value. As a result, both stocks should produce above-average results in the next few years. ENCANA CORP. $30 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.2 million; Market cap: $22.1 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.8%; SI Rating: Average) is one of North America’s largest natural-gas producers....

ENCANA CORP $32.07 (Toronto symbol ECA; Shares outstanding: 735.3 million; Market cap: $23.6 billion; SI Rating: Average; Dividend yield: 2.5%) earned $81 million, or $0.11 a share, in the three months ended June 30, 2010 (all amounts except share price in U.S. dollars). The latest earnings were down 82.8% from the company’s year-earlier earnings of $472 million, or $0.63 a share. Cash flow per share fell 13.2%, to $1.65 from $1.90. Revenue rose 10.2%, to $1.5 billion from $1.3 billion. Depressed natural gas prices were the main reason for the lower earnings and cash flow. That decline offset a 7.9% rise in the company’s total production....

Energy ETFs (exchange-traded funds) can be a good, low-cost way to hold energy stocks. In our newsletters, we recommend a number of energy stocks that would be good additions to a stock portfolio. If you want to hold an energy ETF, here’s one that invests in the biggest Canadian energy firms: iShares S&P/TSX Capped Energy Index Fund, $17.99, symbol XEG on Toronto (Shares outstanding: 45.2 million; Market cap: $813.1 million) aims to mirror the performance of the S&P/TSX Capped Energy Index, which is made up of the largest-capitalization energy stocks on the Toronto exchange. The weight of any one company is capped at 25% of the index’s market capitalization. The fund’s MER is 0.55%. It yields 2.5%. iShares S&P/TSX Capped Energy Index Fund’s top-10 holdings are Suncor Energy, 18.0%; Canadian Natural Resources, 13.8%; Encana Corp., 8.1%; Cenovus Energy, 7.9%; Talisman Energy, 6.2%; Canadian Oil Sands Trust, 4.8%; Nexen, 3.9%; Imperial Oil, 3.6%; Penn West Energy Trust, 3.2% and Crescent Point Energy, 3.2%....

CGI GROUP INC., $14.70, Toronto symbol GIB.A, is Canada’s largest provider of computer-outsourcing services. The company’s services help its customers automate certain routine functions, such as accounting and buying supplies. That makes its clients more efficient, and lets them focus on their main businesses. This week, the company reported earnings that matched the consensus estimate. But an unexpected revenue drop caused stock to fall 10%. In its third quarter, which ended June 30, 2010, CGI earned $85.9 million. That’s up 12.0% from $76.7 million a year earlier. Earnings per share rose 20.0%, to $0.30 from $0.25, on fewer shares outstanding....

ENCANA CORP., $32.22, Toronto symbol ECA, fell 4% after the company reported lower-than-expected earnings. In the three months ended June 30, 2010, Encana earned $81 million, or $0.11 a share (all amounts except share price in U.S. dollars). These figures exclude a $340-million loss on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $246-million foreign-exchange loss. On this basis, the latest earnings fell well short of the consensus estimate of $0.22 a share. They were also down 82.8% from the company’s year-earlier earnings of $472 million, or $0.63 a share. Cash flow per share fell 13.2%, to $1.65 from $1.90. Revenue rose 10.2%, to $1.5 billion from $1.3 billion. (Note: The year-earlier figures assume that the break-up of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...

ENCANA CORP. $33 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 741.7 million; Market cap: $24.5 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.4%; WSSF Rating: Average) is a leading North American natural-gas producer. The company focuses on unconventional reserves, such as shale gas deposits. (Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas.) The company took its present form on December 1, 2009. That’s when the old EnCana Corp. split itself into two separate companies: the new Encana and Cenovus Energy. 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. 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 fell 15.1%, to $1.57 from $1.85. Revenue fell 3.7%, to $3.5 billion from $3.7 billion....

In response to the BP oil spill in the Gulf of Mexico, regulators will probably require offshore drillers to install more equipment aimed at preventing future spills. These extra costs would hurt the profits of companies that are active in the Gulf, including Chevron and Apache. However, any new costs would have little impact on their long-term prospects. As well, the spill should make less-risky onshore producers more attractive. That would favour Encana, with its growing unconventional natural-gas reserves, and Cenovus, which focuses on the oil sands. CHEVRON CORP. $72 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $144.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 4.0%; WSSF Rating: Above Average) is the second-largest integrated oil company in the U.S., after ExxonMobil. Chevron gets 95% of its earnings by producing oil and natural-gas. The remaining 5% comes from its refineries, petrochemical operations and gas stations....

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. $33 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 748.7 million; Market cap: $24.7 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.5%; SI Rating: Average) continues to expand its unconventional natural-gas holdings. In May 2010, the company bought 250,000 acres in the Collingwood shale-gas deposit in Michigan. Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas. Early test wells indicate that Collingwood could hold as much gas as Encana’s other major shale-gas holdings in Louisiana and northeastern B.C. Encana paid $37.5 million for this land (all amounts except share price and market cap in U.S. dollars). That’s small next to the $1.2 billion, or $1.57 a share, of cash flow that the company generated in the three months ended March 31, 2010....

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....