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Opinions Brendan Caldwell
Encana CorpECA.TODON'T BUYJul 14, 2016
Brendan CaldwellUnknown
$10.30
Stock price when the opinion was issued
$4.96
As of Jan 24, 2020. Market Open.
oilgas
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PARTIAL SELL
Just beat earnings and have increased production. Cheap valuation compared to peers. But it's getting more expensive heading into 2021. There's no growth here, but that goes with the entire oil patch. The real issue is will they survive. Their balance sheet is getting better, but still high for a blue-chip name. You'll be saved if oil and price prices massively spike. Take profits if it's in an unregistered account.
oilgas
DON'T BUY
Weakness in share price recently is related to their moving HQ into the US. Their strategy for the move is to trigger share buying in the US as they become part of a larger market index, he thinks. There is no guarantee this will happen in the US, so this is a pretty risky strategy. In the meantime, they are selling off as their are dropping off the TSX60 index. It is cheap on a number of valuation metrics, but it is still so caught up in the lack of momentum in all energy stocks that he would stay away. The stock will face a 5:1 consolidation when they adopt the new US company name. The new ticker is expected to be OVV.
oilgas
DON'T BUY
In a way the new company will become an orphan. It is still thought of as mostly a natural gas play. The new ticker will become OVV in the US. He would prefer ARX, instead.
oilgas
DON'T BUY
Short-term, when a Canadian company moves to the States, it loses a lot of shareholders. Also, they made an acquisition at the start of 2019, so they carry a lot of debt. He isn't sure that this will turnaround soon. ECA used to be big holding in Canadian portfolios, which he suspects will be unwound. Meanwhile, pension money is flowing into private equity which is buying....energy. It's convoluted--people are selling oil stocks to buy private equity which is buying oil.
oilgas
DON'T BUY
COMMENT
Will hiding their Canadian identity help this stock? It's a difficult issue in the oil sector. Mind you, the CEO has been living in the States. Changing their name won't make a difference. Margins and production growth will matter, instead. ECA's move to the US speak to something more ominous in Canadian oil: it's difficult to raise capital here. Fossil fuels are going through an existential crisis with parts of the world not wanting oil anymore. Oil is like tobacco, going down a difficult path that people don't want to own, but at least a person can choose to smoke.
oilgas
BUY
You're brave to be in energy now. He is. Valued stocks are selling at a major discount here. Look for free cash flow that can grow production and dividends. Encana is one of the best in this sector. It's a bargain now, but not for the weak of heart and you'd need to hold this a long time. They have good positions with many operations in the U.S. They're profitable.
oilgas
DON'T BUY
They just bought 4% of shares. They must prove their acquisition of Newfield of lowerng well costs (they have, by 1.4 millions wells). But US investors and hedge funds don't like this deal, so it will take time to convince them. He's owned this before as a short-term trade. There are better names, particularly in mid-caps.
oilgas
Got hit when all the other stocks got hit. There were dividend cuts at many companies. This low interest rate environment which will go on for a long time has had a big impact on economic development. This one, however, has not shown the consistency in growth to fit his criteria. It will stay low for a long time.