Trade-Ideas: PPL (PPL) Is Today's

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified PPL ( PPL) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified PPL as such a stock due to the following factors:

  • PPL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $107.9 million.
  • PPL has traded 792,642 shares today.
  • PPL is trading at 1.98 times the normal volume for the stock at this time of day.
  • PPL crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on PPL:

PPL Corporation, an energy and utility holding company, generates, transmits, distributes, and sells electricity to wholesale and retail customers in the Pennsylvania, Kentucky, Virginia, Tennessee, and the United Kingdom. The company operates in four segments: Kentucky Regulated, U.K. The stock currently has a dividend yield of 4.5%. PPL has a PE ratio of 25.2. Currently there are 5 analysts that rate PPL a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for PPL has been 4.1 million shares per day over the past 30 days. PPL has a market cap of $22.0 billion and is part of the utilities sector and utilities industry. The stock has a beta of 0.20 and a short float of 1.4% with 3.15 days to cover. Shares are up 9.8% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates PPL as a buy. Among the primary strengths of the company is its expanding profit margins over time. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • 35.84% is the gross profit margin for PPL CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 7.96% is above that of the industry average.
  • PPL CORP's earnings per share declined by 46.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, PPL CORP reported lower earnings of $1.74 versus $2.61 in the prior year. This year, the market expects an improvement in earnings ($2.23 versus $1.74).
  • PPL, with its decline in revenue, underperformed when compared the industry average of 5.7%. Since the same quarter one year prior, revenues fell by 17.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • In its most recent trading session, PPL has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • Net operating cash flow has declined marginally to $652.00 million or 7.25% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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