General Electric (GE) will report results on Wednesday, January 30, and some side sell-side analysts have been building a bull case for GE ahead of the quarterly results. These bullish views come despite a sharp decline in revenue estimates for the company and its horrible track record of delivering better than expected results. Additionally, the company does have significant risks ahead, especially given its exposure to Boeing (BA) and the potential impact from 737-MAX grounding.
The analysts may not be alone in their stance, because options traders are making bullish bets too, indicating share may rise to more than $13. You can track all of my free articles on GE and other Seeking Alpha articles on this Google Spreadsheet I have created.
Weak Results Expected
The fourth quarter is not expected to be strong, with earnings forecast to rise by around 5% to $0.18 per share. Meanwhile, revenue is estimated to have plunged by 23% to $25.55 billion.
Consensus analysts’ estimates for revenue have fallen by a massive amount. Since the beginning of October, revenue estimates have dropped by over 20% from $32.3 billion. Also, the company doesn’t have the best history of beating analysts estimates either, so the reduction in those forecasts may not help much. Over the past eight quarters, GE has met or beaten estimates only four times.
The company’s history of beating earnings estimates isn’t much better, meeting or beating them just five out of the last eight times.
Some Analysts Are Bulled Up
Despite the weak reporting performance and the potential risk around the company’s exposure to Boeing, some analysts have boosted their ratings. On January 23, Morgan Stanley raised its rating on the stock to Overweight from Equal Weight while raising its price target to $14 from $11. Meanwhile, on January 13 Deutsche Bank called GE a short-term Buy but kept the stock a hold longer-term with a $12 price target.
Options Traders Are Bullish Too
Even options traders are making bullish bets on the stock with the potential for its increase to over $13 by June. On Jan. 23, the open interest for June 19, 2020, $13 calls rose by over 41,000 contracts to a total open interest of about 82,000 contracts.
Data from Trade Alert shows that the call options traded on Jan. 22 on the Ask, an indication the calls were bought, and a bet that the stock will rise. According to that data, the options traded for $0.40 per contract.
Additionally, the open interest for the $15 calls also rose by around 41,000 contracts on Jan. 23 to a total open position of about 69,500 contracts. It appears that these calls were part of a spread transaction with the $13 calls, because the $15 calls traded on the bid and were sold for $0.11 per contract.
It means that for the trader to earn a profit on this spread, the stock would need to rise above $13.30, a gain of about 13% from the current stock price of roughly $11.74 on Jan. 23.
Technical Trends Are Strong
The chart for GE does show that the stock is trending higher and is nearing a potential break out should it rise above $12.35. It could result in the stock climbing to around $13.30
Additionally, the relative strength index is trending higher and it too would suggest that momentum is moving into GE and that it should continue to rise over the longer term.
However, should the stock report horrible results and decline, the first major of level of technical support would not come until $10.75, a drop of about 8.5%. After that price, the next meaningful support level would not come until $9.74.
Momentum has clearly been on the stock’s side in recent months, and the if bullish sell-side analysts, options traders, and technical chart get it all right, then the stock could see a meaningful pop after results.
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About The Author
I first fell in love with the stock market when I was 16 years. Now, 25 years later and after a long career as a buy-side trader, I share all of my experience with you daily with timely thoughts throughout the day in Reading The Markets. I use fundamental, technical, and options market analysis to identify individual stock ideas for you.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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