We wrote about UGI Corporation (NYSE:UGI) back in June and stated that we were still undecided on future direction. Although we noted that a potential descending triangle was definitely in play, buying volume continued to increase. Suffice it to say, the descending triangle pattern played out as shares dropped below $41 a share in recent trading.

The catalyst for the latest down move in the share price was the earnings miss for the most recent fiscal year. UGI Corporation reported diluted earnings of $2.28 per share which missed consensus by approximately $0.07 per share.

As the weekly chart shows below though, UGI at this price is starting to look very interesting. Why? Because the descending triangle (with respect to a lower price target) has now played itself out in full here. This is not saying that we will not get any more downside movement in the share price in the near term. What we are saying though is that shares look far more attractive now in November than they did in the Summer for example.

We can also see on the weekly chart how oversold the RSI and MACD indicators have become. We believe that weekly indicators are more comprehensive than daily ones and rarely have these indicators been so oversold. Bulls will now be hoping shares can recover their November losses quite quickly. Let’s go through more technical data to see if indeed a robust rally is in the offing.

If we go to the daily chart, we like to use the “On Balance Volume” indicator to get a read on how volume has been trending. This really is the key here. Volume has been diverging against price for close on 12 months now. We use volume as a predictive indicator of where price will eventually go. The problem with this tool is that it is very hard to predict when the share price will actually follow suit.

Therefore, we would be of the assumption that the gap printed on the 12th of this month is an exhaustion gap. These types of gaps take place at the end of an extended move and also take place at high volume. What we would be looking for here in the near term would be for the gap to begin to close quickly. Obviously, there is also the possibility that the recent gap ends up not getting filled and we witness even lower lows on the horizon. However, despite the recent earnings miss, one cannot state that the fundamentals look weak at UGI Corporation. We state this because:

  1. The long-term uptrend is still firmly intact. The 2017 lows and also the 2018 lows have yet to be breached with conviction.
  2. The dividend has now grown every year for 32 years now and remains well covered by earnings.
  3. Earnings growth expectations buoyed by acquisitions look robust over the next few years with 14%+ bottom line growth expected this year. This trend should fuel continued dividend growth.
  4. The debt to equity ratio of 1.12 has not been this low since 2011.

To sum up, because of the earnings miss, the earnings multiple may not look that attractive at present. However, we still see value in the firm’s assets and sales which is why we predict some type of rebound here. Let’s see what the next of November brings.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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2019-11-15