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Brand Face-Off: SolarCity Corp vs. SunEdison Inc

Evaluating SCTY and SUNE from technical and sentiment viewpoints

by 3/11/2014 12:16:20 PM
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Alternative energy concerns SolarCity Corp (NASDAQ:SCTY) and SunEdison Inc (NYSE:SUNE) have flown up the charts during the last 12 months. SCTY has advanced nearly 350% year-over-year to trade at $76.47, while SUNE has almost quadrupled in value within the same time period, and was last seen at $20.70. What's more, in the past three months, the two solar stocks have outperformed the broader S&P 500 Index (SPX) by 39.8 percentage points and 55.6 percentage points, respectively.

On the charts, SolarCity and SunEdison have recently pulled back from multi-year highs, but each appears to have found a technical foothold. SCTY, for example, bounced off of its ascending 40-day moving average just yesterday. Meanwhile, SUNE's 10-day trendline -- which roughly corresponds with an analyst-induced upside gap from March 4, as well as the $20 level -- contained a similar move lower on Monday.

Daily Chart of SCTY since September 2013 With 40-Day Moving Average

Daily Chart of SUNE since December 2013 With 10-Day Moving Average

Despite the stocks' outstanding price action, neither has much support in the options pits, relatively speaking. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SCTY has racked up a 50-day put/call volume ratio of 0.44, which registers in the 76th percentile of its annual range. Similarly, SUNE's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.33 is just 4 percentage points from a 52-week peak, meaning traders have rarely scooped up puts over calls with greater rapidity during the past year. An unwinding of these pessimistic bets could power moves higher in both SCTY and SUNE.

On Wall Street, five out of the seven analysts covering SolarCity rate the shares a tepid "hold," leaving just two "strong buys." On top of that, the stock's consensus 12-month price target of $73.63 represents a discount to the current price. Suffice it to say, the shares could soon benefit from a round of analyst upgrades and/or upwardly revised price-target adjustments.

The outlook isn't quite so bearish for SunEdison, which has received eight "buy" or better endorsements from the brokerage bunch, compared to just one "hold" and not a single "sell" recommendation. However, the equity's price target of $21.07 is just a chip-shot away from current levels, meaning the shares could run higher on potential price-target hikes.

Lastly on the sentiment front, the solar securities are no strangers to the short-selling crowd. Specifically, 24% of SCTY's outstanding float is sold short, as is 18.2% of SUNE's float. Consequently, there's opportunity for both stocks to benefit from short-covering rallies.

Based on our foregoing discussion, it's impossible to pick a winner in this Brand Face-Off. As should be clear by now, both SolarCity Corp (NASDAQ:SCTY) and SunEdison Inc (NYSE:SUNE) are technical juggernauts that appear primed to benefit, should their detractors start throwing in the proverbial towel.


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