Due to tensions in Iraq, oil prices have been making an assault on fresh highs for the year. And with rebel groups threatening some key refineries and the Iraqi government seemingly unable to contain the uprising, there are real concerns that at least some of Iraq’s production could be taken off line.

While this is obviously a troubling situation, it is forcing many investors to look closer at the North American oil market instead. Companies here do not have to worry about geopolitical risks, and thanks to fracking and other technologies, have seen production levels soar as of late too.

A number of companies have benefited from this trend and have seen their share prices move sharply higher as a result. And should this trend continue we could definitely see more gains out of several companies in this space, such as Encana (ECA).

Encana in Focus

Encana is a Calgary, Alberta-based oil firm that explores for oil, natural gas, and natural gas liquids in the United States and Canada. The firm’s focus is in Western Canada—specifically British Columbia and Alberta—but it also has some exposure to projects in Nova Scotia, and then several states in the U.S. as well.

This has proven to be a pretty great business to be in, as ECA stock has moved sharply higher in the YTD time frame. The stock has actually appreciated by close to 40% so far in 2014 which is a pretty incredible run after its more-or-less flat performance in the preceding six months.

Yet while the stock has certainly moved higher in the past few months, there is plenty of reason to believe that more gains are ahead. This is especially true when you consider that ECA’s forward PE is still below 20, it is projected to see triple digit earnings growth this year, and its stock has seen rising earnings estimates.

Earnings Estimates for ECA

Over the last two months, investors have seen earnings estimates for ECA go sharply higher for both this year and next year. In fact, figures have surged from an estimate of $1.15/share 60 days ago to a level of $1.55/share today.



This is thanks to universal analyst agreement about Encana’s prospects, as not a single estimate for the current year has gone lower in the past sixty days. And given that we have seen a similar trend in the current quarter and next quarter periods as well, there is plenty of reason to be bullish on Encana in both the near term and the long run.

Bottom Line

Given these trends, it should be pretty clear why we have assigned ECA a Zacks Rank #1 (Strong Buy) and are looking for more outperformance from this stock over the next few months.

If these analyst revisions and #1 Rank aren’t enough, investors should take comfort in the fact that ECA is in great company from an industry rank perspective as well. Its oil and gas exploration and production peer group is in the top 25% right now, so there are definitely some tailwinds in this space.

This is particularly true when investors consider the broad geopolitical situation hitting the oil market and how this might make for a solid situation if you are a North American producer. Not only does ECA benefit from this trend, but its surging earnings estimates and great growth prospects suggest that even with the run up, there are plenty of gains to be had in this impressive Canadian oil and gas producer.

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