General Electric Company (NYSE:GE) sparked a plethora of headlines and considerable gains for GE stock last week when the company announced that it was spinning off most of its GE Capital. The move is part of a broader restructuring plan for the Connecticut-based conglomerate to return focus to its core operations.
Ahead of the open on Friday, investors will get a glimpse into GE’s future when the company offers up its first-quarter earnings report and provides guidance at the ensuing quarterly conference call.
Currently, Wall Street is anticipating a profit of 30 cents per share from GE, a drop of about 10% from the same quarter last year. Revenue, meanwhile, is seen arriving flat with last year’s results, coming in at $32.2 billion.
There is more than a little bullish sentiment to go around when it comes to GE. For instance, Thomson/First Call data reveals that 10 of the 19 analysts following GE stock rate it a “buy” or better, compared to nine “holds” and no “sell” ratings. Elsewhere, the consensus 12-month price target for GE stock of $30 and represents a measly premium of about 8.2% to yesterday’s close.
The low price target should come as no surprise, however, given GE’s surge following last week’s announcement. That said, while there is room for improvement here, analysts are likely waiting on GE’s guidance and additional restructuring details before making any additional moves.
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 403,280 contracts, compared to put open interest of 198,638 contracts. As a result, the April/May put/call open interest ratio of 0.49 reveals that calls more than double puts among near-term options.
Click to Enlarge Overall, options traders are pricing in a minor post-earnings move of about 2.7%. As a result, the upper bound lies at $28.23, while the lower bound lies at $26.77. Oddly enough, these levels roughly correspond with GE’s trading range on Friday, after the market responded to the company’s restructuring news.
Any move within this range would not be out of the ordinary, but a breach of either the upper or lower rails on guidance could signal the stock’s trajectory over the coming weeks.
2 Trades for GE Stock
Call Spread: GE stock is currently in a consolidation period following last week’s gains, but that doesn’t preclude additional upside potential should the company offer additional details on its restructuring plans. As such, the path of least resistance appears to be to the upside, especially with the potential for the remaining bearish stragglers to come on board.
As such, traders looking jump on the bullish bandwagon might want to consider a May $27/$29 bull call spread. At last check, this spread was offered at 83 cents per share, or $83 per pair of contracts. Breakeven lies at $27.83, while a maximum profit of $1.17, or $117 per pair of contracts, is possible if GE stock closes at or above $29 when May options expire.
Put Sell: For those traders that want to side with the bulls, but don’t expect an immediate rally from GE, a put sell may be just the neutral path you are looking for. At last check, the May $26 put was bid at 13 cents, or $13 per pair of contracts.
As long as GE stock trades above $26 through expiration this Friday, traders pursuing this strategy will keep the $13 premium. However, if GE trades below $26 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $26 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
