Morningstar | Raising Encana’s FVE; Stock Still in 3-Star Territory
We are raising our fair value estimate on no-moat Encana to $12 (CAD 15) from our previous estimate of $11 (CAD 14). Our increased near-term commodity price forecasts and our improved outlook for Encana's price realizations drove the increased fair value estimate. Encana has pipeline transportation contracts that mitigate its exposure to AECO prices, which are decimating Western Canadian gas producers’ cash flow, along with its exposure to Midland oil pricing.Despite the increased fair value estimate, Encana currently trades about 15% above our updated fair value estimate. We remind investors that oil prices are still more than 15% above our midcycle estimate of $55/bbl WTI, reflecting above-average near-term supply disruptions. But these are temporary barriers. There are about 100 more U.S. tight oil rigs active than necessary to balance the market in the long run, and lower prices are required--sooner or later--to incentivize a slowdown in the shale patch and avoid a painful glut. We are maintaining our no-moat rating.
Encana reported second-quarter production of 337.9 thousand barrels of oil equivalent per day, below our expectations. The lower-than-expected production was driven by a slower ramp-up of the company’s planned drilling production. The company plans to achieve its 2018 target production in the range of 360-380 mboe/d and fourth quarter production range of 400-425 mboe/d. We think that both of these targets are realistic, given the company’s pipeline contracts, but caution investors that the upper end of the ranges may be optimistic because of takeaway capacity issues surrounding western Canadian oil and gas production.
During the quarter Encana repurchased 7 million common shares for $89 million. To date, the company has purchased half of the planned $400 million in stock repurchases. Encana joins major oil sands integrated firms Canadian Natural, Suncor, and Imperial Oil in returning capital to shareholders in the form of share buybacks.
Encana is in the business of the exploration for, the development of, and the production and marketing of natural gas, oil and natural gas liquids (NGLs). All of Co.'s reserves and production are located in North America. As at Dec. 31, 2016, total proved developed and undeveloped reserves for natural gas, oil, and NGLs were 2.90 billion cubic ft., 155.6 million barrels (MMbbls), and 150.4 MMbbls, respectively. Co.'s operating and reportable segments are: Canadian Operations, USA Operations, and Market Optimization.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.