Comparing Valuation And Performance: Encana Corporation (ECA), Eaton Corporation plc (ETN)

The shares of Encana Corporation have decreased by more than -9.23% this year alone. The shares recently went up by 3.60% or $0.42 and now trades at $12.10. The shares of Eaton Corporation plc (NYSE:ETN), has slumped by -2.21% year to date as of 04/13/2018. The shares currently trade at $77.26 and have been able to report a change of 1.70% over the past one week.

The stock of Encana Corporation and Eaton Corporation plc were two of the most active stocks on Friday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. ECA has an EBITDA margin of 59.1%, this implies that the underlying business of ECA is more profitable. The ROI of ECA is 6.60% while that of ETN is 8.40%. These figures suggest that ETN ventures generate a higher ROI than that of ECA.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, ECA’s free cash flow per share is a negative -4.37, while that of ETN is positive 2.16.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for ECA is 1.40 and that of ETN is 1.60. This implies that it is easier for ECA to cover its immediate obligations over the next 12 months than ETN. The debt ratio of ECA is 0.87 compared to 0.45 for ETN. ECA can be able to settle its long-term debts and thus is a lower financial risk than ETN.


ECA currently trades at a forward P/E of 11.94, a P/B of 1.75, and a P/S of 2.65 while ETN trades at a forward P/E of 13.63, a P/B of 1.97, and a P/S of 1.67. This means that looking at the earnings, book values and sales basis, ECA is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of ECA is currently at a -23.76% to its one-year price target of 15.87. Looking at its rival pricing, ETN is at a -14.87% relative to its price target of 90.75.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), ECA is given a 1.70 while 2.40 placed for ETN. This means that analysts are more bullish on the outlook for ETN stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for ECA is 1.37 while that of ETN is just 3.78. This means that analysts are more bullish on the forecast for ECA stock.


The stock of Encana Corporation defeats that of Eaton Corporation plc when the two are compared, with ECA taking 6 out of the total factors that were been considered. ECA happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ECA is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ECA is better on when it is viewed on short interest.

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