Encana [stock_market_widget type="inline" template="generic" color="default" assets="ECA.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] [stock_market_widget type="inline" template="generic" color="default" assets="ECA" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock beat both earnings and revenue estimates. The company reported its second-quarter earnings on July 31. It managed to avoid a drop in earnings, and it more than doubled revenues from last year’s levels.
The industry has seen a relentless decline in stock prices in recent months. However, a positive quarterly report could finally give investors a reason to drill for profits in ECA stock.
Encana Beat Earnings, Revenue Estimates
The Calgary-based oil and gas producer reported earnings of 21 cents (28 Canadian cents) per share. This came in three cents per share ahead of analyst predictions of 18 cents (24 Canadian cents) per share. The company also earned 21 cents per share in the year-ago quarter.
Encana also brought in $2.06 billion (C$2.71 billion) during its second-quarter $70 million (C$92 million) above estimates. Revenues more than doubled from the same quarter last year when the company brought in $983 million (C$1.29 billion).
Encana Hit By Falling Prices, Earthquakes
Despite much higher revenues and an earnings beat, ECA stock has suffered this year. News from a recent acquisition has not helped matters. Encana completed its purchase of Newfield Exploration in February. This made the Calgary-based oil and gas producer the second-largest producer of unconventional resources in North America.
However, it has also brought with it an unexpected headache. A 3.2 magnitude earthquake forced the company to suspend operations in Kingfisher County, Oklahoma. A 3.9 magnitude quake subsequently followed. This came from the recent Newfield purchase, and some wonder if this will force Encana to write down the value of the asset.
ECA stock has also not escaped the downtrend that has affected other upstream peers such as Chesapeake Energy (NYSE:CHK) or Devon Energy (NYSE:DVN). Stagnant crude prices and rock-bottom natural gas prices have sent many oil drilling stocks to new lows.
Encana stock has now fallen below levels it traded in early 2016 when oil sold at less than half of the current price of about $56 per barrel. The current ECA stock price stands at just above $4 (C$5.75) per share, slightly above 52-week lows.
Should I Buy ECA Stock?
I think investors should look at buying ECA stock at these levels. Stocks at 52-week lows to keep setting new lows, I would not buy now. However, ECA rose by more than 6.5% in anticipation of the quarterly report. Now with the release of the report, the stock shot up by an additional 4-plus% in early trading.
Despite these increases, investors can now buy Encana at about 4.7 times forward earnings. Moreover, while analysts forecast a 10.5% drop in profits for this year, they expect a 22.1% increase in 2020. They also predict earnings will grow by an average of 19.72% per year over the next five years.
Furthermore, after falling oil prices decimated its dividend in earlier years, its payout has begun to rise again. Shareholders receive annual payouts of 7.6 cents (10 Canadian cents) per share. This 1.7% yield comes in just below the S&P 500 average of 1.86%.
In short, ECA stock will soon offer double-digit profit growth at a single-digit multiple. With a payout to top it off and a market increasingly focused on natural gas exports, investors should do some of their own exploration in ECA stock.
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