Analysts Bullish on EnCana's Plans to Split Itself in Two

Analysts jacked up their price targets on EnCana Corp. (ECA) after Canada’s largest energy company said it would split itself in two. Shareholders will receive one share in each entity in exchange for each EnCana share.

The unconventional gas company will produce 517 million barrels of oil equivalent per day, while its integrated oilsands assets, along with mature natural gas and oil plays, will be combined for a total of 245 million barrels per day, according to UBS analyst Andrew Potter, who hiked his price target on EnCana shares to $110 from $94.

EnCana ended the week at C$86.52 in Toronto and $85.93 in New York trading.

Based on similar U.S. companies focused on unconventional gas. Mr. Potter estimates a value of $65 per share for the gas company, and $45 per share for the oilsands-focused entity.

He told clients:

The key benefit of this transaction is added transparency to ECA’s high quality resources. By splitting EnCana into two focused companies the market will likely begin paying full value for ECA’s assets.

Menno Hulshof at Blackmont Capital upgraded EnCana to “buy” from “hold” and boosted his price target to $99 from $86. The analyst said the long-awaited restructuring increases investor appeal given the pure-play assets, the new entities being best-in-class in their respective sub-sectors, and the top-tier technical teams in place at both new companies.

Stephen Calderwood at Raymond James upgraded EnCana to a “strong buy” from “outperform” and boosted his price target to C$102 from C$88. He expects the plan will proceed and told clients to buy now “in order to fully participate in the potential upside in value.”

The analyst said the outlook for each of the two proposed companies is better than EnCana as it is currently configured. The gas company benefits from a higher production growth rate due to its smaller size and fewer “no-growth” areas, while the integrated oil company could benefit from a higher multiple like that of an integrated oilsands company funded by cash flows from a “stable natural gas business.”

EnCana’s current quarterly dividend of C$0.40 is expected to remain unchanged, while the tax-free plan of arrangement is expected to close in the first quarter of 2009.

Comments

[carloz678]

245 million barrels per day? Wake up.