GE Full Earnings Primer (GE)

General Electric Co. (NYSE: GE) is on deck for earnings Friday morning.  While the whole market has been hanging on to the financial stocks, GE has been trading like a financial stock rather than like an old world conglomerate.  The Thomson Reuters estimates are for $0.21 EPS and $39.0 billion in revenue.   We are not really interested in the numbers unless there are major surprises either way.  But the individual metrics here offer far more insight into the stock than the earnings.

As a reminder, the company’s consensus estimate for tomorrow number was $0.31 just 90 days ago.  This stock started 2009 at $16.51.  On March 4, this stock hit an intra-day low of $5.87 and its lowest close was $6.66 the following day.  With shares at $12.27 as of Thursday’s close, traders and investors need to keep in mind that this stock has doubled off of its lows.  Regardless of how bad the market was from January to the lows, we cannot recall a single six-week stock double at GE.

GE has promised to back off of giving guidance other than longer-term guidance.  But the company still makes some projections , so we do not have any feel at all for what sort of guidance it will really offer.  Thomson Reuters has next quarter’s report consensus at $0.24 EPS on $41.92 billion.  That EPS number was 50% higher just 90 days ago.  For some reason it still seems high compared to the company’s comments in recent weeks.  Its 2009 targets from analysts are $1.00 EPS and $166.57 billion in revenues.

Regardless of the bounce, we have vowed to not be shocked at all if the company misses earnings or if it talks down earnings and revenues.  For a company of its nature, this is a real possibility.  But the recent positive financial reports also make it possible that the company can beat.  So again, we have vowed to not be shocked at almost anything under the circumstances.

CFO Keith Sherin did say that the financial operations would be profitable, although it was not an emphatic “profitability” in manner.  Whether or not it is profitable, what matters here is if it is not killing the company.

We already saw the debt ratings downgrade.  The company already gave its deep dive on its financial operations.  While a short interest of 2% of the float seems low, that is actually over 210 million shares in the short interest.

GE’s stock is well above the 50-day moving average of $10.00.  But we show the 200-day moving average as being $17.87.  It looks like there was an old support level in the past at $13 and then closer to $14, but those support levels were so brief that we do not have any solid comfort in calling those as any solid resistance levels on the chart.

After such a gain, it might take a lot of “we did much better than expected” comments to prevent a sell-the-news reaction.

The analysts were so wrong and so irrelevant that we do not have any interest in even addressing their opinions nor their price targets.  All they did was add insult to injury on the way down, so maybe they can add more juice on the way up.

Options will be tricky because tomorrow is options expiration date.  We are rendering an implied expectation of options traders expecting a move of about $0.65 in either direction.  If we used May expirations for the analysis that number is likely more than $1.00 in the stock.

Another options issue to consider is a massive open interest. This April open interest of over 600,000 contracts, or an implied 60 million shares worth of fully leveraged shares.  And the open interest in the put options open interest is even greater than that number.

GE generally reports earnings very early in the morning, so the move in futures, assuming there is one, may occur while most are still asleep.

Jon C. Ogg