NEP -- bottom of rising channel vs. top of declining channel

2023年11月29日

I am starting a position on NEP on three thoughts:

1. The company should be able to resolve its financing issues.
   
2. The stock pays a hefty dividend (14.6%)
   
3. I expect the gently rising intermediate term trading channel to remain active, and the short-term, declining channel to get broken.
   

Somewhat balancing this view is the concern that a significant dividend cut may be approaching, if the company exits its existing Convertible Equity Portfolio Financings (CEPFs), which total almost 4.6B vs. a market cap of less than 2.2B. NEP used 70% stock and 30% cash to retire the first of these contracts. Some of the remaining ones would allow up to 100% stock. This raises the prospect of the share count tripling as the CEPFs get retired. In that case, the dividend expense may be more than the company can manage, forcing a significant cut.

But I am looking to gradually shift my "energy" exposure from the current focus on oil and gas producers towards renewable energy and NEP may present an opportunity to start this process at an attractive valuation.

All in all, I am giving this a try, but I will be quick to exit this position, if the green trading channel were to get violated to the downside.

2023年12月1日

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It's two days later and NEP is up almost 8%. It would be tempting to just cash in, but I will stick to the original plan. As long as my thesis for owning NEP remains valid, I will stay invested. If NEP is able to put their financing issues behind them, I will add to my position on weakness. If the debt burden or the dividend expense burden becomes too large, I will sell my position.

2023年12月6日

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After one week, this position is now up more than 13%. Obviously, I am pleased. But in this case, I am watching the position carefully. The reason is that the stock is still down by nearly half from where it was just a quarter ago. The almost vertical drop at the beginning of October is arrested FOR NOW. This could change:

What right now looks like a successful consolidation ahead of what will hopefully become a more robust recovery COULD turn out to be a continuation pattern in the form of either a symmetrical triangle/wedge, or a bear flag. The chart below illustrates the risk.

I am not turning bearish, but it's important to be aware of the risks.

2023年12月7日

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Here's a zoomed-in look at the chart from yesterday using hourly bars. In that note I menionted the potential for a symmetrical triangle to develop. The likelihood of that happening has only gone up over the past day. Not that this morning's rally in NEP ran into resistance almost exactly at the dashed declining green line.

2023年12月13日

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With the explosive action following the Fed's rate decision today, the symmetrical triangle scenario is no longer a concern. The high from Dec 7 has been taken out.

2023年12月14日

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NEP tagged the top of the green channel today, as follow-through continues from yesterday's Fed dot-plot surprise.

2023年12月14日

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This position is up just over 30% in just over two weeks. In other words, I don't expect a lot more in the short term. After the first week of 2024 the steep fall of late September and early October will drop out of the 3-month intermediate-term window. This drop happened with enormous volume, and it will continue to keep the point of control at $22.60. But as will likely just mark time inside the green channel, a new point of control will emerge by the end of the first week of 2024. My hope is that this new point of control will be quite a bit higher than the old one, and provide us a strong support to trade from in 2024.

2023年12月28日

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So far things are progressing as I hoped/expected. This is just to point out that NEP just broke above both a declining short-term trend channel and a symmetrical triangle to the on the 30-minute chart. There's also a double bottom still active, though it's not the cleanest pattern. Both patterns have historically had very high profit factors, and win rates for NEP on the 30-minute chart.

3月1日

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For the last month NEP has struggled to get through the declining trend that goes back to the summer of last year. It looks like today it's finally breaking through. This will need to be confirmed next week, but if it can hold today's gains on Monday I think there's lots of opportunity to rise. My next target would move to $36.

4月3日

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NEP is a stock I continue to hold. I see it as a turn-around play, and one where I am getting paid to wait, with the yield approaching 12%. Fundamentally, I believe that the narrative of improving financial strength is still alive and well. Technically, there has been a bit of improvement. The red resistance used to be the line connecting the July 2023 highs to the (lower) September 2023 high. That line has been taken out by price. The next resistance will be the last major resistance, and it is the red line connecting the declining highs going all the way back to December 2022. I'd be surprised if that resistance were taken out on the first attempt. I expect bears to take at least one more run at NEP, before the stock gets through theYTD highs around $32. But, again, we're getting paid a huge dividend to wait, and we're up 20% on the position. So, I'm pretty calm about it.

4月24日

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Following yesterday's earnings release of NEP and NEE, I am adding to my position in NEP.

At the current enterprise value of roughly 9 billion dollars and with an owned generating capacity of 10.1GW, the company is valued at less than the replacement value of its generating assets: Per National Renewable Energy Lab the projected CAPEX requirement per kW of land-based wind and utility-scale PV generating assets are $1,292/kW and $1,290/kW, respectively (moderate scenario, market-based, for 2024).

5月3日

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There are 3 important things going on with NEP, now:
1. The stock now challenges the top of the consolidation range that it's been in since the beginning of the year.
2. Next week we will reach the ex-div date, which will deliver another 89¢ to us shareholders.
3. Lastly, we are approaching the next trend line, connecting the declining highs from last year (see chart).

Against that background, I think it would be perfectly justifiable for anyone with a short-term horizon to take profits, either right now, or right after the stock goes ex-div. My hunch is that the stock would drop by less than the 89¢ on the ex-div day, so I'd make sure to collect it. But that could go either way.

In any case, I am playing a longer game with this stock. I am waiting for the complete rehabilitation of NEP to its former highs, and in the meantime, I'm willing to be patient and collect the dividend. The only thing that would make me sell early, would be a weekly close BELOW the consolidation range seen in the chart. I am hopeful that it won't come to that.

6月13日

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In late May, when JPMorgan downgraded NEP to underweight, it did not seem to affect the stock in its uptrend. But when yesterday Mizuho downgraded the stock, as it was already weakening, it definitely had an impact. Today's downgrade by Barclay's even more so. Why the downgrades? It's possible that the banks are perceiving difficulty for NEP in its effort to retire its remaining CEPF debt, which would be a serious concern. But a more transient reason seems more likely to me: On May 23, the same day as the JPMorgan kicked off the downgrades, the EIA published its "Electricity Monthly Update". And that report revealed some surprising weakness for electricity demand and prices in the US.

According to the EIA, for the most recently reported month (March 2024), total electricity sales in the US were down about 3.5%, or 10k GWh, year-on-year. This shows a significant slowdown, following growth of 19k GWh and 12k GWh in January and February, respectively.

This demand weakness has pushed wholesale electricity prices to their lowest levels in a year across the entire US.

Some of the weakness is due to mild temperatures ,which reduced the need for heating or cooling. But demand was weak not just from residential customers, but also from commercial and industrial customers. It might therefore also be an early sign of a weakening domestic economy.

I remain in the position, and have no plans to sell.

6月20日

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Here's an update of the chart that I had shared previously:

Also, I will be paying special attention to the EIA's release next Wednesday of the Electric Power Monthly report. It will contain the April data for electricity demand by sector and region.

7月1日

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The EIA's Electric Power Monthly report was a mixed bag, in my opinion. Power demand was a bit better than in the prior month, rising on a year-on-year basis, but wholesale power prices were very weak. I believe this to be the motivating issue behind the continuing wave of downgrades for NEP. with RBC Capital joining that bearish chorus today. NEP is now close to the floor of the consolidation range, $25.50. As I have said before, If we close this (or any) week below that level, I will be out.