ENCANA CORP. $18.09 (Toronto symbol ECA; Shares outstanding: 737.9 million; Market cap: $13.3 billion; TSINetwork Rating: Average; Dividend yield: 4.6%; www.encana.com) is one of North America’s largest natural gas producers.
In the three months ended June 30, 2013, Encana’s cash flow per share fell 16.7%, to $0.90 from $1.08 a year earlier (all amounts except share price and market cap in U.S. dollars). The decline came from lower realized gas prices.
The company continues to expand its hedging program, which helps shield it from volatile gas prices. For the rest of 2013, it has hedged roughly 75% of its expected output at $4.37 per thousand cubic feet, 19% higher than today’s price of $3.67. For 2014, Encana has hedged 55% of its forecast production at $4.19.
Even without these hedges, Encana’s long-term outlook remains bright. Its holdings in B.C. and Alberta are ideally positioned for delivering gas to Canada’s west coast for conversion into liquefied natural gas (LNG) bound for Asia, where gas sells at a big premium. Lower gas prices are also prompting more utilities to convert from coal to natural gas. That should help spur long-term demand.
The stock trades at a reasonable 5.0 times its annual cash flow of $3.60 a share, based on the latest quarter. It yields an attractive 4.6%.
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