Encana (ECA): What's In The Cards This Earnings Season?

Oil and gas explorer Encana Corporation (NYSE:ECA) is set to report third-quarter 2016 results on Nov 3, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 225.00%. Coming to its earnings surprise history, Encana reported an average negative earnings surprise of 71.21% for the last four quarters.

Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

Calgary, Alberta-based Encana is a focused pure-play natural gas exploration and production company. It is one of the largest natural gas companies in North America with the potential for robust growth in production owing to its huge inventory of reserves and a strong resource base. The company’s size and scale of business should drive earnings growth in the to-be-reported quarter as well.

Encana has been striving to reduce expenses by selling high cost/ low profit generating assets. The divestiture of several such assets as part of the company’s portfolio streamlining strategy should bode well.

ENCANA CORP Price and EPS Surprise

ENCANA CORP Price and EPS Surprise | ENCANA CORP Quote

In addition, the proceeds from the aforesaid asset sales are being used to lower debt burden, though much is yet to be achieved. This should offer financial flexibility to the company to better handle the current volatile market conditions. Also, Encana remains focused on expanding its asset base to generate higher returns. Initiatives like these should have a positive impact on the upcoming earnings.

However, Encana is a firm in the upstream industry and hence, its profit is influenced by commodity price fluctuations. With both oil and natural gas prices remaining low, Encana's revenues, earnings and cash flows will likely be affected.

Also, the company's highly-leveraged balance sheet (long-term debt of over $5.7 billion and a weak cash position indicate that its financial position is under pressure. A prolonged period of low commodity prices will aggravate this problem.

Earnings Whispers

Our proven model does not conclusively show that Encana is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Encana has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 1 cent. Please check our Earnings ESP Filterthat enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank:Encana has a Zacks Rank #2, which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

While earnings beat looks uncertain for Encana, here are some domestic upstream you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

CONE Midstream Partners LP (NYSE:CNNX) is expected to release third-quarter earnings results on Nov 4. The partnership has an Earnings ESP of +2.70% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CSI Compressco LP (NASDAQ:CCLP) has an Earnings ESP of +27.27% and a Zacks Rank #3. The partnership is anticipated to release third-quarter earnings on Nov 4.

Archrock Partners, L.P. (NASDAQ:APLP) has an Earnings ESP of +8.33% and a Zacks Rank #1. The partnership is likely to release third-quarter earnings on Nov 1.

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