I’ve been a bear on General Electric Company (NYSE:GE) for several months now. It’s an easy stance to take given the company’s restructuring and reorganizing efforts. However, even I think this recent selloff has been more than a bit overdone. What’s more, earnings are coming up, and all it will take is a bit of positive news to send the stock skipping higher once again.
GE will step onto the earnings stage next Friday ahead of the market open. Wall Street is currently expecting GE to post a profit of 50 cents per share, up sharply from earnings of 32 cents in the same quarter last year. Revenue is expected to rise 11.5% to $32.62 billion.
Still, expectations appear to be a bit higher within the analyst community, despite the recent spate of bearish headlines. According to EarningsWhispers.com, General Electric’s whisper number arrives two cents higher at 52 cents per share. Matching the whisper could be a significant bullish spark for a beaten down GE stock price.
Expectations begin to fade from here. For instance, only nine of the 16 analysts following GE stock rate the shares a “buy” or better. The 12-month price target of $27.93, meanwhile, rests a hefty 21% north of GE’s current perch following the stock’s recent plunge. Whether this results in downgrades or price-target cuts remains to be seen, but most analysts are likely waiting on next week’s quarterly earnings report to make a final decision.
Click to Enlarge Whether this results in downgrades or price-target cuts remains to be seen, but most analysts are likely waiting on next week’s quarterly earnings report to make a final decision.
On the bearish end of the spectrum are GE options traders. Currently, the October put/call open interest ratio rests at a lofty reading of 1.18, with puts outnumbering calls among options most affected by next week’s earnings report.
(Note: October options expire the same day that GE reports earnings.)
October implieds are currently pricing in a post-earnings move of about 3.78%. This places the upper bound at $23.87, with the lower bound coming in near $22.13.
With the shares trading at very oversold levels, GE stock analysis indicates that a rebound from $23 is all but inevitable. And with earnings on the horizon, look for bargain hunters to move in rapidly.
2 Trades for GE Stock
Call Spread: Those looking to bet on a rebound for GE stock might want to consider an Oct $23.50/$24 bull call spread. At last check, this spread was offered at 13 cents, or $13 per pair of contracts. Breakeven lies at $23.63, while a maximum profit of 37 cents, or $37 per pair of contracts — a potential return of 184% — is possible if GE stock closes at or above $24 when October options expire.
Put Sell: If you’re looking for a more neutral play on GE ahead of earnings, then an Oct $22 put sell position has you covered. At last check, this put was bid at 13 cents, or $13 per contract. On the upside, traders will keep the initial premium received as long as GE stock closes above $22 when October options expire. The downside is that should GE trade below $22 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $22 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.