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What's in Store for Encana (ECA) this Earnings Season?

Encana CorporationECA is set to report third-quarter 2015 results on Nov 12, before the market opens.

On the earnings front, the company had posted weak numbers in the past. Encana missed the Zacks Consensus Estimate in three of the trailing four quarters, with an average negative surprise of 33.38%. In the last reported quarter, the company missed estimates by 6 cents on low natural gas volumes and weak oil and gas prices.

Let's see how things are shaping up for this announcement

Factors to Consider this Quarter

Calgary, Alberta-based Encana is a focused pure-play natural gas exploration and production (E&P) company. As such, the company's financials are heavily exposed to commodity prices. During the July-September period natural gas prices hovered below $3 per MMBtu. On the other hand, oil traded mostly in the mid-$40 per barrel level. Both these commodity prices are significantly below the year-ago quarter level, which in turn, is likely to result in lower revenues for the firm.

Other concerns for the firm include rising costs and a highly leveraged balance sheet. However, it has been working toward reducing costs. The company has been divesting several assets as part of its portfolio streamlining strategy. The proceeds are being used to lower debt burden but much is yet to be achieved.

Having said that, a large number of brokerage firms remain concerned about the company's upcoming earnings as indicated by lowering of estimates. Encana's third-quarter estimate is currently pegged at a loss of 4 cents per share. The company had reported earnings of 38 cents per share in the year-ago quarter.

Earnings Whispers

Our proven model does not conclusively show that Encana is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat earnings. 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 -75.00%. This is because the Most Accurate estimate is currently of a loss of 7 cents per share, while the Zacks Consensus Estimate is pegged at a loss of 4 cents.

Zacks Rank: Encana has a Zacks Rank #3, which increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings beat, which is not the case here.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies from the energy sector with the right combination of elements to post an earnings beat this quarter:

Seadrill Partners LLC SDLP has an Earnings ESP of + 12.00% and a Zacks Rank #1. The company is expected to release earnings on Nov 25.

Eclipse Resources Corporation ECR has an Earnings ESP of +5.88% and a Zacks Rank #3. The company is likely to release earnings on Nov 11.

Helmerich & Payne, Inc. HP has an Earnings ESP of +16.67% and a Zacks Rank #3. The company is likely to release earnings on Nov 12.

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ENCANA CORP (ECA): Free Stock Analysis Report

HELMERICH&PAYNE (HP): Free Stock Analysis Report

SEADRILL PTNRS (SDLP): Free Stock Analysis Report

ECLIPSE RESRCS (ECR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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