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Duke Energy Rallies on Bullish Brokerage Note

UBS raised its price target on DUK

by 12/13/2011 1:00:11 PM
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On the heels of Warren Buffett's recent deal with First Solar (FSLR), Duke Energy Renewables -- a unit of Duke Energy Corporation (DUK - 20.94) -- yesterday announced the acquisition of two solar energy farms in Arizona from Recurrent Energy for an undisclosed amount. By adding the Ajo Solar Project and the Bagdad Solar Project, DUK has now doubled its portfolio of commercial solar projects.

Following yesterday's announcement, UBS raised its price target on the stock to $21 from $20 this morning. More optimistic attention from the brokerage bunch may be on the way, as sentiment surrounding the outperforming security remains firmly bearish. Zacks reports that 16 out of 16 analysts maintain a "hold" or worse rating on the stock. What's more, the consensus 12-month price target -- as calculated by Thomson Reuters -- is pegged at $20.57, a 2% discount to DUK's current price of $20.94.

This pessimistic outlook is shared elsewhere on the Street, where short interest accounts for a healthy 3.9% of the stock's available float. In fact, it would take one week to cover these shorted shares, at DUK's average daily trading volume.

Echoing this bearish bias, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.53 ranks higher than 58% of similar annual readings, indicating that puts have been bought to open over calls at slightly accelerated levels in the past two weeks.

Furthermore, peak put open interest rests at the December 20 strike, where 4,042 contracts currently reside. By contrast, just 3,287 contracts make up peak call open interest at the December 21 strike.

DUK price chart

Technically, DUK has followed in the bullish footsteps of its fellow utilities concerns, and has added 17.5% over the past 52 weeks. In addition, after following the broader market lower during mid-November's sell-off, the stock has powered higher, managing to reclaim its perch atop the $20.50 level -- an area that provided support throughout October and the early weeks of November.

From a contrarian perspective, as December expiration approaches this Friday, potential options-related resistance at the $21 mark will soon be removed, allowing DUK to continue with its positive price trend.


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