Thursday, November 28, 2013

EnCana Corp

I do not own this stock of EnCana Corp (TSX-ECA, NYSE-ECA), but I used to. I had held this stock previously as Alberta Energy Company from April 2000 until August 2002 and made some 18% total returns per year. I had EnCana Corp from February 2006 to November 2009 and made a 9.54% per year total return. I sold this stock in 2009 because I only had 100 shares and the stock was going to split into two companies. I would have ended up with small investment in two companies.

As you can see I do not look on oil companies as a long term buy. Also, please note that my spreadsheet following this company starts with Alberta Energy Company and follows this company into the formation of EnCana in 2002. It was in 2002 EnCana was formed with the merger of AEC and PanCanadian Energy Corporation. Company split into EnCana Corp and Cenovus Energy Inc. in 2009, Oil with Cenovus and gas with EnCana.

Until this year, this company has kept dividends at $.80 US$. As part of their new strategy they have decreased their dividend by 65% to $.29 US$. This reduces their dividend from a 3.98% yield to a 1.47% yield. With their new strategy EnCana hopes to give better total returns to their shareholders. They say they are aligning the dividend with cash flow and hope to average a 10% annual growth rate in cash flows. This implies that they might in future raise the dividends.

See EnCana's press release at the G&M entitled "EnCana Announces Vision and Strategy, Bold Action Underway".

Total returns on this stock have not been great over the past 5 but good over the past 10. This company's stock has not done well as the stock price has really just been declining since the split in 2009. The total return over the past 5 years to date is a negative 4.19% per year with a capital loss of 7.32% per year and dividend income 3.13% per year.

Neither the returns over the past 5 years nor the total returns over the past 10 years really matter much as the company says they have a new strategy to make money for the shareholders which includes a much lower dividend yield.

Over the past 5 years outstanding shares have not changed. Shares were increased due to Stock Options, Share Issues and DRIP and were decreased due to buy backs.

Revenue has been decreasing from 2009 to 2012, but is expected to increase by 15% in 2013. If you look at revenue over the 12 month period to quarter 3, revenue has increased by 17%. This would seem that the analysts are probably right on revenue estimates.

With Earnings per Share, they have also decreased from 2009 to 2012 and the analysts here expect a positive EPS of $1.04. The 12 month EPS to the end of the third quarter is $0.56. Since according to the December 2012 Interim report says there was a $.80 loss in that quarter, it would appear that the analyst might be right on EPS estimates.

The comprehensive income has varied from the net income a lot since 2009, both being higher and lower. The variance for 2012 was only 3% and it is 3% also for the 12 month period of the third quarter. If the analysts are right, there should be a decent ROE of around 13% for 2013.

The Liquidity Ratio has varied a great deal from a low 1.03 to a high of 2.10 since 2009. The current ratio is good at 1.56. One of the changes that EnCana says they want with the new strategy is a stronger balance sheet, so hopefully the new ratio is a sign of this.

The Debt Ratio has generally been fine since 2009, but the current one at 1.42 is a little low. I prefer one at least at 1.50 or above. The Leverage and Debt/Equity Ratios are a little high at 3.40 and 2.40. They used to be better. Hopefully these ratios will also improve with the new strategy.

The company has a new strategy which includes lower dividends. It has not done particularly well since the split off of Cenovus. So a new strategy is a good idea. See my spreadsheet at eca.htm.

This is the first of two parts. Second part will be posted on Friday, November 29, 2013 and will be available here.

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.

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 or StockTwits.

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