BMO Upgrades Encana, Says 'Sell-Off Provides Opportunity'

In a report published Friday, BMO Capital Markets analyst Randy Ollenberger upgraded the rating on

from Market Perform to Outperform, while reducing the price target from $16 to $15. Investor meetings with CEO Doug Suttles revealed that Encana's 2015 capital program has been fully funded through cash flow and divestitures and that the company is focusing on maintaining its investment grade rating. Encana is also shifting to higher margin production in a bid to drive cash flow growth even at flat commodity prices. "The company is focused on its four key plays (Montney, Duvernay, Eagle Ford and Permian) and is continuing to drive efficiency gains and cost reductions," analyst Randy Ollenberger said. The company's current stock valuation is highly compelling and its shares are trading at a discount to its peer group median. In the report BMO Capital Markets noted, "We believe the discount reflects the company's relatively higher leverage and natural gas weighting; however, we expect Encana to complete additional dispositions of non-core properties in 2015 and 2016 that should improve the company's balance sheet and support a positive re-rating of its multiple in line with its peers." Ollenberger believes that Encana has "a strong portfolio of assets" and is poised to generate "significant growth in higher margin crude oil and natural gas liquids production." The cash flow per share estimate for 2015 been reduced from $2.00 to $1.80. The cash flow per share estimate for 2016 has been raised from $2.12 to $2.14.