Dow Jones component General Electric (GE) joins the earnings parade this week, stepping up to release its second-quarter earnings report. The global conglomerate has a long history of solid performance in the earnings confessional, matching or beating Wall Street’s targets in each of the past 12 reporting periods, and investors will be keen to see if the blue-chip can extend its winning streak.
Currently, Wall Street is anticipating a profit of $0.39 per share from GE, a rise of roughly 8% over the same quarter last year. Additionally, expectations point to a quarter-over-quarter rise, with GE banking $0.33 per share in the first quarter. Current-quarter expectations may be a bit higher, however, as EarningsWhisper.com reports that GE’s second-quarter whisper number arrives at $0.40 per share.
This bullish sentiment extends well beyond earnings expectations, however. For instance, Thomson/First Call data reveals that seven of the 14 analysts following GE stock rate it a “buy” or better, compared to seven “holds” and no “sell” ratings.
That said, there is room for improvement, as the consensus 12-month price target for GE stock of $28.50 represents a measly premium of about 7% to yesterday’s close. A solid quarterly report could go a long way toward convincing these analysts to lift their expectations.
Speculative traders in the options pits are also betting bullishly on GE stock. In the front two months of options, GE has accumulated call open interest of 238,816 contracts, compared to put open interest of 121,218 contracts. The resulting July-August put/call open interest ratio of 0.50 reveals that calls — or bets that GE will rally — roughly double puts — or bets that GE stock will decline.
Taking a closer look, the majority of GE call open interest is centered at the out-of-the-money weekly July 27 and 28 strikes, which sport 76,436 contracts and 46,562 contracts, respectively. Put activity, meanwhile, is focused at the weekly July 26 strike, totaling roughly 26,000 contracts.
Overall, options traders are pricing in a modest post-earnings move of about 2.5%. As a result, the upper bound of GE stock’s expected move rests at $27.15, while the lower bound arrives at $25.85. These levels correspond roughly with short-term support and resistance levels, hinting that it could take more than just Friday’s quarterly report to help GE resume its longer-term uptrend.
Still, there are opportunities to be had for traders looking to capitalize on a post-earnings move from GE. With the stock likely to rally on the news, an August 26/27 bull call spread is one way to profit from a positive report.
After the close of trading last night, this spread was offered at 59 cents, or $59 per pair of contracts. Breakeven lies at $26.59, while a maximum profit of 41 cents, or $41 per pair of contracts, is possible if GE stock closes at or above $27 when August options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
