In last week's edition of Trading Tools, we examined The Dow Chemical Company (DOW), as it made an appearance on the Zacks Unusually High Option Volume screener. Taking advantage of the same filter today, a different, lesser-known security piqued my curiosity: Paris-based Veolia Environnement (VE: sentiment, chart, options), which provides environmental management services worldwide.
What has been France's greatest contribution to the world?
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Earnings – Ooh La La
According to the Zacks screener, Veolia on Thursday was a favorite target among bullish options bettors. More specifically, the security saw roughly 138,750 calls cross the tape, more than 20 times its average single-session volume of fewer than 6,750 contracts.
However, the optimistic outpouring stands in stark contrast to the sentiment among short-term options speculators. The environmental issue's Schaeffer's put/call open interest ratio (SOIR) rests at a lofty 3.81, implying that puts nearly quadruple their call counterparts among options slated to expire within three months. Plus, the equity's current SOIR stands at an annual acme, suggesting that near-term traders haven't been more skeptically skewed toward VE at any other time during the past year.
The catalyst behind the bullish blitz was likely the company's first-quarter earnings report, which hit the Street before the opening bell yesterday. Veolia said earnings before interest, taxes, depreciation and amortization (EBITDA) fell 6.6% to EUR1.06 billion, surpassing analysts' estimates for a profit of EUR1.02 billion. And, while the company said the economic climate weighed on its waste business, the French firm said it's on track to meet its 2009 goals.
Tres Chic on the Charts?
Technically speaking, the shares of VE have powered higher recently, surging roughly 49% since grazing the 19.50 level in early March. In fact, the stock has outperformed the S&P 500 Index (SPX) by an impressive 17.3% during the past 10 trading sessions, muscling into the black atop support at its 10-day moving average. In late afternoon trading, the equity is flirting with a gain of 1.3 points, or 4.5%, to linger near the 29 neighborhood.
From a more historical perspective, however, the shares of VE may be approaching some challenges on the charts. Most notably, the security's upward trajectory could face a speed bump in the round-number 30 region. Not only is this area home to the stock's descending 10-month moving average – a trendline that hasn't been defeated in more than a year – but it also hampered VE's rally attempts during most of 2004, and again earlier this year.
Word on the Street
Regardless of potential technical hurdles, the majority of analysts remains confident in VE. According to Zacks, the stock harbors three "strong buy" ratings, compared to a lone "strong sell." In addition, Thomson Reuters pegs the average 12-month price target on the equity at $35.35 – in territory not explored since September 2008. In order to achieve this ambitious goal, the shares of VE would need to rally about 22% - not to mention barrel through potential resistance in the 30 region.
Going against the bullish tide among the brokerage bunch was Citigroup, which said it remains "cautious" on VE following the firm's first-quarter earnings report. The analyst said the stock is likely to see "short-term support" following the stronger-than-expected results, but warned that the consensus estimates on the company's 2009 and 2010 EBITDA "look too high on the back of these results."
In conclusion, should VE fail to perforate the 30 level, some of these bulls could abandon ship. A fresh wave of downgrades and/or price-target reductions could place additional selling pressure on the shares of the French firm.
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