Business

Citigroup gave the Gas Utilities industry some bad news as it announced a downgrade on one of its stocks.

EQT Corporation (EQT) [Chart - News - Analysis] was downgraded from Buy » Hold on 9/16/2009---a negative sign for the stock that investors will have to endure. FYI, Citigroup uses the following rating scale when analyzing stocks: Buy, Hold, Sell.

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EQT Corporation has an average analyst recommendation score of 1.9 and competes for investment dollars with National Grid plc (NGG) [Chart - News - Analysis] and Sempra Energy (SRE) [Chart - News - Analysis]---two other stocks in the Gas Utilities industry that have average analyst recommendation scores of 1.0 and 2.0 respectively.

Analyst recommendations are averaged and scored using the following rating scale:

- 1.0 = Strong Buy

- 2.0 = Buy

- 3.0 = Hold

- 4.0 = Sell

- 5.0 = Strong Sell

Why are Upgrades and Initiations Good and Downgrades Bad?

One event that is almost certain to get a reaction from Wall Street is an analyst upgrade or downgrade. Everyone is looking for an edge in the stock market, and quite often, traders turn to stock analysts to get that edge.

Upgrades and coverage initiations are typically good for stocks because they show that analysts either believe that the stock is going to perform better in the future or that the stock is worth covering and providing analysis on.

Downgrades are typically bad for stocks because they show that analysts believe that the stock is going to perform worse in the future.

What is a Stock Analyst?

Check out the Understanding Stock Analyst Research and Recommendations video and article for more info.

A stock analysts is a person---typically employed by a large bank, investment firm or analysis company---who devotes his/her life to learning and making predictions about a company and its future performance.

Stock analysts sift through company reports and filings, talk to company management, probe customers and competitors and basically do whatever they can to find out if a company is healthy and growing or sick and shrinking. Because this is incredibly demanding work, stock analysts typically only monitor one or two companies at a time.

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Competition in the Gas Utilities industry is starting to heat up, and a few stocks, like EQT Corporation (EQT), are falling behind.

Here's something to watch. EQT Corporation, National Grid plc (NGG) and Sempra Energy (SRE) are each affected by the same general fundamental forces that affect all of the companies in the Gas Utilities industry. However, if you dig down into the short interest for each stock and calculate their short-interest ratios, you will see that stock traders have more confidence in EQT Corporation than they do in the other two.

Short-interest ratios tell you how long---on average---it will take short traders to cover their short positions on a particular stock. Take these three stocks for instance.

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EQT Corporation has a current short ratio of 5.58. That means it would take approximately 5.58 days for traders to cover their short positions.

National Grid plc has a current short ratio of .44. That means it would take approximately .44 days for traders to cover their short positions.

Sempra Energy has a current short ratio of 3.35. That means it would take approximately 3.35 days for traders to cover their short positions.

Typically, the higher the short ratio, the more bearish traders are on a stock. So out of these three stocks in the Gas Utilities industry, National Grid plc seems to be in the best shape in the minds of traders and EQT Corporation is in the worst shape.

Of course, stocks with too much short interest are always in danger of becoming the target of a short squeeze so make sure to watch for those stocks with high levels of short interest to suddenly take off on any signs of good fundamental or economic news.

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