Encana to Provide First Glimpse of Turnaround Effort

This week will be investors first look into how the company’s turnaround is progressing.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Encana (TSX:ECA, NYSE:ECA) is due to post its year-end results on Thursday. Last quarter Canada’s largest natural gas producer cut its dividend in half, slashed about 20% of its workforce, and vowed to transition to a more profitable oil and liquids rich production mix. And this week will be investors first peak into how the company’s turnaround is progressing under the leadership of Doug Suttles.

Stats on Encana

Analyst EPS Estimate $0.18
Change From Year-Ago EPS (55%)
Revenue Estimate $1.54 billion
Change From Year-Ago Revenue (3.8%)
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance

Which way will Encana’s earnings move this quarter?
Analysts have cut their views recently on Encana’s earnings, with a $0.06 per-share drop in December-quarter estimates. However, a cold winter incoming has put a bid underneath the stock. Share are up 8% since the company last reported earnings in early November.

Thanks to plunging dry gas prices, Encana has been forced to completely overhaul its operations. Chief Executive Doug Suttles’ first order of business will be to simplify the company’s sprawling asset portfolio which consists of some 25 plays across North America. The company intends to spend three-quarters of its 2014 capital budget on five oil and liquids-rich assets including the Montney, Duvernay, DJ basin, San Juan basin and the Tuscaloosa marine shale.

Of course, this leave the fate of some two dozen properties up in the air.

In January, Encana admitted that it is open to selling its Deep Panuke natural gas project offshore Nova Scotia. The project, located roughly 250 kilometres off the coast of Nova Scotia, reached full production of 300 million cubic feet of gas a day from four wells in December. But while the play now provides a nice stream of cashflow, it doesn’t really fit into Encana’s new business strategy.

However, this leaves the fate of more than a dozen other projects still up in the air. Investors should be listening to hear what other assets could be on the chopping block during the conference call.

Investors will be watching the company’s oil and liquids production figures closely. According to Encana’s 2014 budget, the company is looking to increase oil and liquids production by 30% next year targeting a combined total of between 70,000 and 75,000 barrels a day of oil, condensate and natural gas liquids – compared to 50,000 to 60,000 barrels of these liquid products in 2013.

By 2017, Encana wants liquids to make up 75% of its cash flow. This is a critical piece of the company’s turnaround effort. But if Encana is going to hit those targets, the company is going to have to ramp up liquids production quickly and investors will want to watch this number quarter by quarter.

Foolish bottom line
Since taking over as CEO, Mr. Suttles has been working hard to make Encana a smaller and more efficient business. The company has the right strategy. Now investors just have to watch to see if management can execute on their plan.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool Contributor Robert Baillieul has no positions in any of the companies mentioned in this article. 

More on Investing

Glass piggy bank
Investing

4 Dividend Stocks to Hold in Your RRSP Forever

Inflation and volatility should spur RRSP investors to buy dependable dividend stocks like Hydro One Ltd. (TSX:H) and others right…

Read more »

protect, safe, trust
Dividend Stocks

3 Safe Stocks for Beginners Amid Rising Volatility

Given their stable cash flows and healthy growth potential, these three safe stocks are excellent buys for beginners.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

3 Cheap Bank Stocks to Buy Today

Canadians may want to snatch up top bank stocks like Bank of Montreal (TSX:BMO)(NYSE:BMO) that look undervalued today.

Read more »

calculate and analyze stock
Stocks for Beginners

Top TSX Stocks for Beginners in July 2022

Buying these top TSX stocks in July 2022 could help stock market beginners receive handsome returns on their investments in…

Read more »

thinking
Investing

Stocks, Bonds, or Real Estate: What’s the Best Way to Prepare for a Recession?

Recession worries could push investors to bonds.

Read more »

Oil pumps against sunset
Energy Stocks

How Would a Price Cap on Russian Oil Impact Canadian Energy Stocks?  

Canadian energy stocks surged in the last three days, as G7 countries proposed a plan to impose a price cap…

Read more »

Business success with growing, rising charts and businessman in background
Tech Stocks

3 Growth Stocks Worth Buying Today

With the volatility of the stock market, many investors continue to avoid growth stocks. However, here are three stocks worth…

Read more »

money cash dividends
Dividend Stocks

Market Correction: 2 Oversold TSX Dividend Stocks to Buy for Total Returns

These top value stocks pay attractive dividends and look cheap to buy for a TFSA or RRSP focused on total…

Read more »