General Electric Company (GE) steps into the earnings limelight this week ahead of Friday’s open, and despite under performance from its financial units over the years, GE has a history of strong fundamental performance. With the company close to finally divesting itself of its financial unit burdens, GE’s outlook and guidance could be just what the bulls are looking for.
Diving into the numbers, Wall Street is anticipating a profit of 19 cents per share from GE, on revenue of $27.67 billion. Both figures are down year-over-year, but that hasn’t stopped many analysts from setting their sights higher.
In fact, the Earnings Whisper number for GE’s first-quarter arrives at 21 cents per share — two cents better than the consensus and a penny better than year-ago results.
A closer look at the brokerage community reveals a heavy bullish bias. According to data from Thomson First Call, 10 of the 17 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 $33.09 represents a measly premium of about 6.3% to yesterday’s close. A solid quarterly report could go a long way toward convincing analysts to lift their expectations.
Options traders, meanwhile, are far from convinced of General Electric’s potential. Specifically, the April/May put-call open interest ratio arrives at 0.8, with puts gaining on calls in the past two weeks. What’s more, this ratio rises significantly to 1.78 for the weekly April 22 series, with put nearly doubling calls among options most affected by GE’s quarterly earnings report.
Click to Enlarge Overall, weekly April 22 series implieds are pricing in a potential post-earnings move of about 2%. This places the upper bound at $31.65, while the lower bound arrives at $30.35.
These levels arrive just inside of GE’s recent high near $32 and low near $30, meaning that the stock could remain range-bound for the short term unless earnings provide some unexpected development.
2 Trades for GE Stock
Call Spread: Traders looking to side with the bulls ahead of GE’s quarterly report might want to consider a May $31/$32 bull call spread. At last check, this spread was offered at 44 cents, or $44 per pair of contracts. Breakeven lies at $31.44, while a maximum profit of $56 is possible if GE stock closes at or above $32 when May options expire.
Put Sell: Since GE isn’t know for making large short-term moves, it may be more prudent to consider a short-term put sell position heading into Friday’s quarterly report. At last check, the weekly April 22 $30 put was bid at 5 cents, or $5 per contract. On the upside, traders will keep the initial premium received as long as GE stock closes above $30 when these options expire at the end of this week. The downside is that should GE trade below $30 ahead of expiration, traders could be assigned 100 shares for each put sold at a cost of $30 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
