Societe Generale: The Pullback In Encana Shares Is An Investment Opportunity

Encana Corp (USA) ECA reported a fourth-quarter adjusted earnings per share that trailed expectations Thursday. But  the energy company's discretionary cash flow per share after common stock fell in line with the consensus, Societe Generale said in an upgrade note.

The Analyst

Societe Generale analyst John Herrlin upgraded Encana from Hold to Buy, with an unchanged 12-month price target of $14.80.

The Thesis

Encana shares have declined about 20 percent year-to-date despite the company positioning to generate positive free cash flow in 2018 and experiencing production growth, Herrlin said in a Thursday note. 

The analyst said he views the recent pullback as an opportunity for investors.

Encana guided its capex budget to $1.85 billion and production to 370 million barrels of oil equivalent per day at the midpoint, an 18-percent growth year-over-year from core properties, the analyst said. Herrlin said 70 percent of Encana's budget is geared toward the Permian and Montney.

"And unlike 2017, when ECA outspent cash flow by 64 percent, it plans to be cash flow neutral this year," Herrlin said. 

Societe Generale noted Encana announced a $400-million stock buyback program, equating to 3.6 percent of outstanding shares.

"Essentially, ECA is out of the lease capture mode in its shale plays and should benefit from having its Verasen gas plants full in the Montney, concentrated E&D in the Permian and by generating free cash flow from the Eagle Ford." 

The Price Action

Encana shares are down over 13 percent over the past year.

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