Jefferies Upgrades Encana To Buy, Sees Execution On Horizon

Encana Corporation ECA received a price upgrade from Hold to Buy by Jefferies on Monday. The firm gave the stock a price target of $9.50, stating the dividend cut enables a focused plan.

The stock traded recently at $7.61, down 0.26 percent. Shares of the natural gas company lost 16.46 percent during the past week and dropped 25.62 percent in the last four weeks.

"We think ECA's current share price gives little credit to significant strides made in improving its inventory quality, its balance sheet, and its funding profile," said analyst Jonathan Wolff in Monday's report. In retaining its investment grade rating, with bonds trading near par and with pro-forma cash on the balance sheet of ~$2.1 billion, they cited the firm's Risk-Adjusted Asset Value estimate takes into account the economics of the drilling inventory and funding potential.

Jefferies' Buy rating was based on both recent asset sales (Haynesville, DJ Basin) in October, which were sold for $900 million to further strengthen the company to position itself as an industry leader in North American natural gas. The firm entered its comments on the report having a bullish commodity price forecast, viewing ECA's net-debt-to EBITDA improving in 2016.

"We model ECA to outspend cash flow by ~$300 MM in 2016, which can be covered by cash on the balance sheet of ~$2.1 B. ECA has no debt maturities until 2019, when $686 MM is due," said Jefferies. In raising Encana's shares to Buy from Hold, they cited Encana's management as very impressive, being poised to execute with a very high-quality of the assets acquired.