Should You Be a Long-Term Buyer of EnCana Corporation Today?

EnCana Corporation’s (TSX:ECA)(NYSE:ECA) stock has taken a hit since it released fourth-quarter earnings on February 25. Should you buy on the dip?

The Motley Fool

EnCana Corporation (TSX:ECA)(NYSE:ECA), one of North America’s largest producers of natural gas, oil, and natural gas liquids, announced better-than-expected fourth-quarter earnings on the morning of February 25, but its stock has responded by moving lower. Let’s take a closer look at the quarterly results to determine if we should consider using this weakness as a long-term buying opportunity.

The better-than-expected results

Here’s a summary of EnCana’s fourth-quarter earnings results compared to what analysts had anticipated and its results in the same period a year ago. All figures are in U.S. dollars.

Metric Reported Expected Year Ago
Earnings Per Share $0.27 $0.24 ($0.34)
Revenues, Net of Royalties $2.25 billion $1.54 billion $1.42 billion

Source: Financial Times

In the fourth quarter of fiscal 2014, EnCana reported net income attributable to common shareholders of $198 million, or $0.27 per share, compared to a net loss of $251 million, or $0.34 per share in the year-ago period, as its revenues increased 58.4% to $2.25 billion. The company’s very strong revenue growth can be attributed to revenues increasing in three of its four major segments, including 11.6% growth to $771 million in its USA Operations segment and 131% growth to $358 million in its Market Optimization segment. Its significant increase in net income and earnings per share can be attributed to the aforementioned increase in revenue, paired with total operating expenses increasing just 14.8% to $1.92 billion.

Here’s a quick breakdown of eight other notable statistics and updates from the report compared to the year-ago period:

  1. Natural gas production decreased 32.2% to 1,861 million cubic feet per day
  2. Oil production increased 108.5% to 68,800 barrels per day
  3. Natural gas liquids production increased 13.9% to 37,600 barrels per day
  4. Total production decreased 20.4% to 416,700 barrels of oil equivalents per day
  5. The realized price of natural gas decreased 4.1% to $4.16 per thousand cubic feet
  6. Cash flow decreased 44.3% to $377 million
  7. Operating earnings decreased 84.5% to $35 million
  8. Cash from operating activities decreased 43.5% to $261 million

EnCana also announced that it would be maintaining its quarterly dividend of $0.07 per share, and the next payment will come on March 31 to shareholders of record at the close of business on March 13.

Is now the time to invest in EnCana?

EnCana is one of the largest producers of natural gas, oil, and natural gas liquids in North America, and increased production of oil and natural gas liquids and decreased expenses led it to a better-than-expected fourth-quarter performance, but its stock has responded by falling over 2% in the days since the release.

Given the strong fourth-quarter performance posted by EnCana, I think the weakness in its stock represents a great long-term buying opportunity. Also, the company pays an annual dividend of $0.35 per share, which gives its stock a healthy 2.2% yield at current levels, and this will provide additional returns to investors going forward, especially if they are reinvested.

With all of the information provided above in mind, I think EnCana represents one of the best long-term investment opportunities in the energy industry today. Foolish investors should take a closer look and strongly consider beginning to scale in to long-term positions.

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 Joseph Solitro has no position in any stocks mentioned.

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