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What's in the Offing for Encana (ECA) This Earnings Season?

Canadian natural gas producer Encana Corporation ECA is set to release third-quarter 2017 results before the opening bell on Nov 8.

In the preceding three-month period, the Calgary, Alberta-based company reported better-than-expected operating earnings on the back of higher realized prices, stellar revenues and successful cost-containment efforts.

Encana has an impressive earnings surprise history. The company posted a positive earnings surprise in the last four quarters, the average being 306.25%.

Let’s see how things are shaping up for this announcement.

Encana Corporation Price and EPS Surprise


Encana Corporation Price and EPS Surprise | Encana Corporation Quote

Factors to Consider

Encana is a leading energy firm with high quality portfolio of natural gas assets spread over Canada and the United States. The company’s strong presence in Montney and Duvernay gas formations along with Eagle Ford and the lucrative Permian shale are likely to boost the Encana’s earnings.

Encana’s strategies to divest the high-cost and low-profit assets provide it with ample cash to accelerate growth. During the quarter, the company completed the sale of Piceance natural gas assets. This will streamline the company’s portfolio and help it to refocus production spending in core plays. Additionally, the proceeds will be utilized to repay debts and strengthen the company’s balance sheet.

Further, Encana’s successful cost-reduction initiatives are expected to improve the margins and boost earnings. Last quarter, total costs incurred by the company reduced 40% year over year. Cost reductions along with improving product mix are likely to positively impact the operating margin of Encana.

However, natural gas prices dropped about 3.5% in the July-September period, owing to the fuel’s tepid demand due to mild weather conditions and hurricane-related power outages. With natural gas prices trading around $3 per MMBtu during most part of the third quarter, the company's earnings and revenues are under pressure. Further, the company’s production in the third quarter may be slightly impacted by the Hurricane Harvey’s catastrophic effects in Texas region. However, Encana recently stated that it expects to achieve its current-year production guidance on the back of pre-scheduled start-ups in Montney.

Earnings Whispers

Our proven model does not conclusively show that Encana is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 5 cents.

Zacks Rank: Encana — which counts Canadian Natural Resources Limited CNQ, Bellatrix Exploration Limited BXE and Crescent Point Energy Corporation CPG among others as its peers — currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.Though a Zacks Rank #3 increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.

Conversely, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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Encana Corporation (ECA): Free Stock Analysis Report
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