Despite Pullback, Laclede (LG) Stock Rally Is for Real: Go Long

The long-term view of Laclede (LG) is okay, but the short term says wait.
By Bruce Kamich ,

NEW YORK (TheStreet) -- Shares of public utility holding company Laclede (LG) broke out to the upside from a multi-month consolidation at the beginning of October and pulled back to that breakout point today. Is this an opportunity to buy or run?

This short-term chart of LG, above, shows both the breakout over $56 and the subsequent pullback. Several bullish indicators came together in early October --volume expanded, the On-Balance-Volume (OBV) line turned up and the 50-day average began to accelerate on the upside above the rising 200-day average. Prices have pulled back the past two days to the breakout point at $56, but we do not see any serious bearish divergences ahead of this pullback.

The longer-term chart of LG above indicates that everything is fine with this rally. Prices are rising above the 40-week moving average. The OBV line is rising and the Moving Average Convergence Divergence oscillator is positive. On this timeframe everything looks great, but you have to balance the timeframes when it comes to execution. The long-term view is OK, but the short-term says wait.

Traders should either wait for the first up day to go long or a bullish Japanese candlestick pattern. We would rather go long on the way back up.

TheStreet Ratings team rates LACLEDE GROUP INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate LACLEDE GROUP INC (LG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, compelling growth in net income and solid stock price performance. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 13.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Gas Utilities industry. The net income increased by 20.6% when compared to the same quarter one year prior, going from $11.69 million to $14.10 million.
  • Net operating cash flow has significantly increased by 104.75% to $86.40 million when compared to the same quarter last year. In addition, LACLEDE GROUP INC has also vastly surpassed the industry average cash flow growth rate of 0.35%.
  • LACLEDE GROUP INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LACLEDE GROUP INC increased its bottom line by earning $2.66 versus $2.43 in the prior year. This year, the market expects an improvement in earnings ($3.20 versus $2.66).
  • You can view the full analysis from the report here: LG

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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