Encana Corp. (NYSE: ECA) may be one of the most undervalued companies in the energy patch. The Canadian energy player was given upside of almost 60% in a call from Merrill Lynch that noted the innovative shale leader has an infrastructure advantage and rising free cash flow.

Merrill Lynch analyst Asit Sen initiated Encana with a Buy rating and a price objective of $19. Encana shares had closed at $11.90 on Monday.

According to Merrill Lynch, Encana has an advantaged takeaway position and peer-leading operational efficiencies. Its management team also has a proven track record. Sen also sees a rising free cash flow profile of $3 billion over five years that should be supported by a culture of technology leadership and innovation.

Over the next five years, Encana is targeting 10% to 15% compound annual growth rate that will be led by the Permian and Montney shale plays. The company has over 11,000 premium locations with multiple years of inventory, and Merrill Lynch believes this extends well beyond the company’s five-year drilling plan. Tuesday’s report further said:

A pioneer in cube development, ECA has been able to enhance operational efficiencies to levels that are industry leading, along with recording one of the lowest well cost per thousand lateral feet in the Permian. On drilling cycle times, the company is currently averaging 12.6 days, about 5.5 days fewer than the average with leading completion efficiencies. While continually incorporating new technology and cutting-edge data, the company also executes a cost-effective fit-for-purpose infrastructure strategy.

Also worth noting is that Encana is considered to be a multibasin play. It isn’t just about the Permian or one other play. This exposure is said to offer clear capital allocation benefits via solid Montney liquids growth as well as steady Duvernay and Eagle Ford operations. Merrill Lynch also expects that Encana will be a strong capital allocator as well. It sees room for Encana to boost its share repurchase program beyond the Merrill Lynch target of $400 million per year. Opportunistic acquisitions also cannot be ruled out.

As far as 60% upside here, the $19 price objective assigns a multiple of 7.0 compared to the Merrill Lynch 2020 EBITDA estimate. While this is in line with Encana’s peer multiple, the firm sees a potential for multiple expansion that would account for this much upside.

With Encana’s market cap of $11.4 billion at the time of the report, Merrill Lynch sees the GAAP net income from operations of $105 million in 2018 rising back up to $736 million in 2020. It sees revenues of $5.236 billion in 2018 rising to $6.5 billion in 2020. And the firm sees EBITDA rising from $2.139 billion in 2018 to $2.901 billion in 2020.

Encana shares were last seen trading up 3.7% at $12.35 on Tuesday, in a 52-week range of $9.79 to $14.31. It had a consensus analyst target price of $17.43 from Thomson Reuters ahead of this call. The street-high target is $21.

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