Pepco Holdings (POM) Marked As A Barbarian At The Gate

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.

Trade-Ideas LLC identified Pepco Holdings ( POM) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Pepco Holdings as such a stock due to the following factors:

  • POM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $73.9 million.
  • POM has traded 2.0 million shares today.
  • POM traded in a range 285.6% of the normal price range with a price range of $1.49.
  • POM traded above its daily resistance level (quality: 6 days, meaning that the stock is crossing a resistance level set by the last 6 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on POM:

Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. The stock currently has a dividend yield of 4.3%. POM has a PE ratio of 29. Currently there are no analysts that rate Pepco Holdings a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for Pepco Holdings has been 1.5 million shares per day over the past 30 days. Pepco has a market cap of $6.3 billion and is part of the utilities sector and utilities industry. The stock has a beta of 0.24 and a short float of 1.8% with 1.57 days to cover. Shares are down 7.5% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Pepco Holdings as a buy. Among the primary strengths of the company is its revenue growth. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • POM's revenue growth has slightly outpaced the industry average of 2.8%. Since the same quarter one year prior, revenues slightly increased by 3.1%. 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.
  • PEPCO HOLDINGS INC's earnings per share declined by 30.0% in the most recent quarter compared to the same quarter a year ago. 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, PEPCO HOLDINGS INC increased its bottom line by earning $0.96 versus $0.41 in the prior year. This year, the market expects an improvement in earnings ($1.30 versus $0.96).
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Electric Utilities industry average. The net income has significantly decreased by 29.3% when compared to the same quarter one year ago, falling from $75.00 million to $53.00 million.
  • In its most recent trading session, POM 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. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.
  • The debt-to-equity ratio of 1.36 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, POM has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.

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