Duke Energy Longs Getting Nervous After Technical Breakdown

Duke Energy Corp DUK shares have been anything but the safety-oriented holdings that the widow and orphan crowd seeks. The stock has moved from a high just under $90 in January to $72.50 as of Monday's close.

The decline has been tied at least in part to the move higher in interest rates recently. However, the move also should be attributed to a simple give-back of some of the massive gains since the 2009 low near $35.

Going forward, does Duke's management have the winning strategies to keep the shares powering higher? Or will investors see Duke shares fall into more of a trading range pattern as a result of traditional utility company earnings and dividend patterns? Let's go to the fundamentals and technicals of the company to get some clues.

What The Bulls See

• Some cheap valuation metrics: An enterprise value of $91.16 billion versus a market capitalization of only $50.14 billion, a price-to-sales ratio of 2.15 and a price-to-book ratio of 1.25.
• 12.21 percent net profit margins that spin off approximately $230 million in positive levered free cash flow annually.
• Acceptable management effectiveness ratios: A return-on-assets of 2.08 percent and a return-on-equity of 6.09 percent.
• An impressive (for a utility company) ratio of 1.03.
• An attractive 4.4 percent annual dividend yield.

What The Bears See

• A PE of just over 14 versus estimated revenue and EPS growth of 2.2 percent and 5.8 percent for the next year.
• The typical utility company debt-heavy balance sheet metrics: Cash of only $2.83 billion versus total debt of $43.83 billion and a debt-to-equity ratio of 106.67 percent.

The Technical Take

Technicians note that Duke shares have broken down below the first of three long-term uptrend lines this month. Barring a major turnaround in the stock by month's end, the technical crowd notes that the intermediate-term picture has become neutral at best and bearish at worst.

The next projected downside target if Duke Energy does not recapture 75.50 on the upside by month's end is all the way down at $63.50.

Overall…

Based on the technicals, the picture for Duke Energy's stock does not look pretty. The shorts will be aggressive sellers of Duke Energy stock on any attempt to test and recapture the 75.50 level. Only a break back above $75.50 will swing the momentum back in favor of the bulls.

Fundamentally, the clear mark against Duke Energy is that the tepid revenue and EPS growth numbers may not justify a PE of 14. A 4.4 percent dividend yield is sometimes tossed aside in terms of importance, especially when the stock drops 20 percent in a short period of time.