Citi Upgrades EnCana To Buy Ahead Of Analyst Day

While Encana Corp’s ECA debt metrics have improved, the overhang of an equity offering is now behind the company, Citi’s Robert S Morris said in a report. He upgraded the rating on Encana from Neutral to Buy, while raising the price target from $10 to $13.

EnCana is scheduled to host its Analyst Meeting on October 5. “We expect an extensive operational update, full-scale development plans for the Permian Basin and slight revision to the timing of Montney liquids production reaching 50 MBbls/d post the Gordondale sale, i.e. now YE’18,” analyst Morris wrote. He added that the company may provide more details of its 5-year plan for its Top-Four plays.

Strong Liquids Growth

Morris expects EnCana’s total organic production to grow at a CAGR of ~12 percent from 2016 through 2021, while organic oil/liquid volumes growing at a CAGR of ~20 percent. The growth would likely be “largely driven by the Permian and Montney with ECA's 'Top Four' output (~70% of current total) doubling while the total production mix transitions to ~48% from ~35% liquids in 2021.”

Debt-Adjusted Per-Share Growth Metrics

The analyst projected an increase of ~88 percent in EnCana's CF/DAS in 2016, versus an average increase of ~57 percent for oil-leveraged large-cap E&P peers. He added that the equity offering removed EnCana from the list of companies with weak balance sheets and would likely enable the company to maintain its investment grade credit rating.

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