Thursday, October 13, 2011

EnCana Corp. 2

I do not own this stock (TSX-ECA). The Alberta Energy Company Ltd. (AEC) and PanCanadian Energy Corporation (PanCanadian) companies merged to form EnCana in 2001. EnCana split into EnCana and Cenovus in 2009.

When I look at insider trading, I find just insider buying around $1.4M. There is no insider selling. Most of the buying has been by officers of the company, but also a bit my directors. All the buying has occurred in August and September of 2011. All insiders, except directors, have lots more options than shares. However, there are insiders that do own considerable amount of shares, like the CEO whose shares are currently worth around $1.8M. There are some 603 institutions that own some 68% of this company. Over the past 3 months they have sold off a minimal amount (less than .1%)

I get 5 year low median Price/Earnings Ratio of 8.81 and a 5 year high median P/E Ratio of 13.40. Therefore the current P/E of 41.5 is showing a very high relative share price. This is not surprising since the EPS in 2010 was $2.03 and the one for 2011 is expected to be a lot lower at $.50. (Also, for some reason some sites are saying the EPS for 2010 was $.90, not what the financial statements show $2.03. I do not know why.)

I get a current Graham Price of just $16.34. The current price of $20.75 is 27% higher. The 10 year median high difference between the Graham Price and the share price is the shares 8.8% higher. This therefore shows a rather high relative share price. But, please note that the current Graham Price is affected by the current EPS estimate.

When I look at the Price/Book Value Ratio, I get a current one of just 0.87 and a 10 year median P/B Ratio of 1.89. The current one is only some 43% of the 10 year median Ratio. This test points to a very good stock price on two points. One is that the current Ratio is so much lower than the 10 year median Ratio (so good relatively price) and also that the current stock price is lower than the Book Value.

When I look at the dividend yield, I get a current one of 3.97% and a 5 year median dividend yield of 2.46%. This would also point to a very good current stock price. Some investors feel that the dividend yield is the only ratio that counts in determining a reasonable stock price. Both this test and the P/B Ratio test do not use with estimates.

However, when EPS estimates are given for the next 4 years, they climb, but even the 2014 estimate is only $1.74, which is still some 15% lower than the one for 2010. It is obvious that analysts do not expect the company to make much in the way of earnings over the next while.

When I look at analysts’ recommendations, I see Strong Buy, Buy, Hold and Underperform recommendations. The consensus recommendation would be a Hold. Analysts seem to think that Natural Gas prices will be soft for a while. Therefor analysts think that this company would be dead money for a while. There is a worry that natural gas market is not growing. (You can see this thinking also in EPS estimates for the company.)

An analyst that likes this stock says that it is 2 or 3 year story. This is saying it is a long term buy. No one expects anything from natural gas at the moment or in the near future. The other thing is that no one thinks that the current dividend is in jeopardy. The estimate cash flow show that only 14 to 15% of the cash flow will be going to dividends in 2011 and 2012.

EnCana is among the largest natural gas companies in North America. They are focused on natural gas exploration and the development of resource plays. They have a diversified portfolio of assets and hold a highly competitive land and resource position in a number of North America's most promising shale and tight gas resource plays. Alberta Energy Company Ltd. (AEC) and PanCanadian Energy Corporation (PanCanadian) companies merged to form EnCana in 2002. EnCana split into EnCana and Cenovus in 2009. Its web site is here EnCana. See my spreadsheet at eca.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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