Why Encana (TSX:ECA) Stock Fell by 2% in August

Encana Corp (USA)(TSX:ECA) is mired in a multi-month slump as its stock fell by another 2% in August as it deals with tough commodity pricing.

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

Volatility was the name of the game in August. The markets made major swings and twice the TSX Index fell by more than 1%. Although this may not seem like much, day-to-day market variations greater than 1% is a sign of considerable volatility.

The oil & gas industry has been particularly volatile as the price of commodities have struggled to find a footing. Case in point, Encana Corp (TSX:ECA)(NYSE:ECA). In 2019, the company has struggled, losing 23% of its value. Over the past year, its performance looks even worse as its value has been more than halved (-61%).

In August, Encana’s downward momentum persisted as it lost 2.16% of its value. The unfortunate reality is that it could have been much worse for shareholders. On four occasions, it lost more than 2.5% of its value in a single day, trading at or near 52-week lows.

Why the considerable volatility?

Natural gas prices

For starters, Encana’s performance is closely linked to the price of natural gas and natural gas liquids (NGLs). True, the company is well diversified and is an oil-rich company with significant prospects for growth. However, it’s still very much dependent on the price of natural gas and NGLs.

In the second quarter, natural gas and NGL accounted for 25% and 20% of total revenue. Almost half of the company’s product revenue comes from these two commodities. Unfortunately for shareholders, these have been some of the hardest hit commodities on the market.

In August, natural gas prices hit multi-year lows. Prices were so depressed that they challenged the record lows experienced in 2016. NGLs suffered a similar fate.

With prices at their lowest in years, it’s not surprising Encana’s share price suffered. In the second quarter end June 30, Encana’s realized natural gas price dropped from $3.30 per Mcf to $2.22, a 32% drop. Similarly, NGL realized prices dropped by 38% from $23.77 per barrel to $14.75.

Given that commodity prices have continued to trend downward in August, the third quarter doesn’t look much better for the company.

Second-quarter results

The low commodity prices were offset by strong second quarter results. In the quarter, earnings of $0.21 beat by $0.03 and revenue of $2.06 billion beat by $70 million. This marked the seventh consecutive quarter that the company beat earnings estimates and only the second time in the past two years it beat on both the top and bottom lines.

The results were impressive considering the tough macro-economic backdrop. Revenue jumped by 109% over the second quarter of 2018, as higher realized oil prices (+3.6%) helped offset the lower prices from other liquids and natural gas.

Results were buoyed by record oil and condensate production. Total production of 592,000 MBOE per day jumped 75% and total costs fell to $12.78 per barrel, down from $13.62 previously. This also led to a 50% increase in cash flow per share to $0.64.

Another positive sign is the company’s announcement of an expected additional $25 million in cost synergies from its Newfield Exploration acquisition. It remains on track to achieve guidance and has begun executing on its $1.25 billion share buyback announced earlier in the year.

Foolish takeaway

Although it wasn’t a great month for the company, there is plenty to look forward too.

Depressed commodity prices have since rebounded and a return to the norm will mean big things for Encana. A material improvement in prices will lead to significant cash flow and earnings.

Analysts have a one-year price target of $13.70 per share, which implies triple-digit upside. The future is bright for this undervalued energy producer.

Should you invest $1,000 in Ct Real Estate Investment Trust right now?

Before you buy stock in Ct Real Estate Investment Trust, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Ct Real Estate Investment Trust wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 mlitalien owns shares of ENCANA CORP.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

I’d Put $15,000 in These 3 Dividend-Growth Champions for Increasing Income Potential

Want to offset some volatility? Here are three defensive dividend-growth champions that can generate a juicy yield right now.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $7,000

Discover how the Tax-Free Savings Account can be your golden goose for generating cash without losing your investment.

Read more »

monthly desk calendar
Dividend Stocks

How I’d Invest $10,000 in Canadian Value Stocks for Monthly Dividend Income

A $10,000-diversified portfolio of value stocks focusing on dividend safety, yield, growth, and payment schedules can provide a reliable source…

Read more »

a person watches a downward arrow crash through the floor
Dividend Stocks

Is This Correction Your Chance? Top 4 Canadian Dividend Stocks on Sale

Stocks may be down, but now is your chance to get some of these top dividend stocks on sale.

Read more »

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Got $5,000? 5 Income Stocks to Buy and Hold Forever

These income stocks have a solid dividend-payout history that can help you earn stress-free passive income.

Read more »

grow money, wealth build
Dividend Stocks

Why I’d Invest $10,000 in This Undervalued Dividend-Growth Stock for Decades of Income

This undervalued dividend stock offers a high yield of over 8% and can help you earn more than $200 in…

Read more »