Canadian natural gas producer
) is set to release its fourth quarter 2013 results before the
opening bell on Thursday, Feb 13.
Last quarter, Encana posted a 33.3% positive surprise, driven by
a significant increase in liquid output, supported by a
substantial drop in expenses. Let's see how things are shaping up
for the fourth quarter results.
Factors to Consider
In Dec 2013, the company announced that it would lower capital
expenditure by about 10% in 2014. A major portion of this reduced
budget will go to the development of liquid-rich resource plays
as Encana plans to increase its liquids production by 30%.
However, natural gas would still make up around 80% of the
company's total output. Investor disappointment was evident as
shares fell significantly post announcement.
Also worth mentioning is that the company expects overall volume
level to remain flat year-over-year despite the expected boost in
Encana's oil and natural gas liquids output.
Quarterly dividend paid in December tanked 65% to 7 cents per
share from 20 cents per share owing to a weak natural gas pricing
environment. This further harbors negative sentiment.
Though we see a solid long-term potential for Encana as it shifts
base to the more profitable liquids assets and increases its cost
effectiveness, we are less hopeful of the upcoming earnings.
Our proven model does not conclusively show that Encana will
beat earnings this quarter. That is because a stock needs to have
both a positive
and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately
this is not the case here as elaborated below.
The Most Accurate estimate stands at 16 cents, while the Zacks
Consensus is higher at 18 cents. This results in a difference of
Encana's Zacks Rank #3 (Hold), however, increases the predictive
power of ESP. That said we also need to have a positive ESP to be
confident of an earnings surprise call.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revisions.
Stocks to Consider
While earnings beat looks unlikely for Encana, here are some
energy firms that you may want to consider on the basis of our
model, which shows that these have the right combination of
elements to post an earnings beat this quarter:
New Source Energy Partners L.P.
) with earnings ESP of +19.05% and a Zacks Rank #1 (Strong
Penn Virginia Corporation
), with earnings ESP of +20.00% and a Zacks Rank #2 (Buy).
Breitburn Energy Partners L.P.
), with earnings ESP of +3.57% and a Zacks Rank #2.
BREITBURN EGY (BBEP): Free Stock Analysis
ENCANA CORP (ECA): Free Stock Analysis Report
NEW SOURCE EGY (NSLP): Free Stock Analysis
PENN VIRGINIA (PVA): Free Stock Analysis
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