General Electric Co. (NYSE: GE) is set to report its first-quarter earnings Friday in the very early morning hours. What is interesting ahead of the formal GE report is that GE already took away much of the potential thunder that the bulls would have used outside of earnings. The conglomerate simultaneously took away any roar from the bears.
With such a monumental restructuring in GE’s financial units and asset sales announced last week, the first-quarter earnings report can only be expected to not be so great. Again, Wall Street should assume this. Things such as a rising dollar in the first quarter, massive slowing in the energy patch after the drop in oil and a slowing trend in manufacturing numbers should not exactly be a surprise to the public by now.
So, how will investors treat GE on the earnings report?
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24/7 Wall St. has provided a basic preview, followed by ongoing trends from stock traders, options traders and GE’s stock charts. If you believe in the efficient market theory, then GE should be given a pass on bad news, or it should have a muted gain if the news is not bad or good. The problem in believing in the efficient market theory is that the markets have had a very tough time in recent years proving anything close to being efficient.
Thomson Reuters has consensus estimates of $0.30 in earnings per share (EPS) on $34.23 billion in revenue. In the same period of the previous year, GE posted $0.33 in EPS on $34.18 billion. If GE offers guidance for the coming quarter, it will compare with consensus estimates of $0.39 EPS and $36.15 billion in revenue.
Again, when GE announced the exit of most GE Capital assets and a new industrial structure focus, the company gave guidance for 2015 on an ex-basis for Synchrony Financial (NYSE: SYF), which counted issues such as future sales of financial assets, a lower share count and for a core operating basis from its industrial operations.
It is already known that GE wants to spend up to $50 billion for buybacks. The dividend was set to remain static through 2016 and to go higher thereafter, but if you consider that GE’s spinning out Synchrony and its selling so many assets to shrink its base and its share count, the reality is that GE could almost be considered a dividend raise even though it is not really raising it.
Shares of GE were down 0.5% at $27.33 in early afternoon trading on Thursday ahead of earnings. The stock has a consensus price target of $29.92 and a 52-week trading range of $23.41 to $28.68. What investors need to consider here is that the 52-week high was seen just last week on the heels of what was then more than a 10% gain from the pre-leak of the news on Thursday morning to the post-news pop on Friday.
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Options traders appear unconcerned at all about GE’s coming earnings report. Friday expiration prices for the closest speculative put and call contracts average out to a 1% move in either direction as the expected move.
A pullback of almost 5% from last week’s highs would lend at least some credence to the belief that technical investors and fundamental investors might have decided to exit ahead of earnings if they were on the fence. This pullback also normalized shares for investors ahead of the news.
GE’s near-term stock chart hardly offers any immediate reads, other than that GE’s shares would have enormous support down about $2 from Thursday’s price. The 50-day moving average is $25.42 and the 200-day moving average is $25.17.
As a reminder, GE is now almost tied for the largest buybacks of all time, if you include what has been repurchased in years past with that new $50 billion buyback plan.
GE’s longer-term chart is reaching ever closer to crucial levels. After GE’s stock peaked above $40 in 2007, GE slid to almost $25 and then quickly rallied to $30, just in 2008 before the rug got yanked out from everyone in the recession. This leaves a large amount of implied resistance as GE inches toward $30 — after all, anyone who bought stock since 2008 is now very profitable.
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