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After trading in a range between $23 and $27 for a year and a half, General Electric (NYSE: GE) was able to break out of the range last week when the stock jumped to a high of $28.68. That is the highest GE stock has been since April 2008.
GE stock jumped over 10% last Thursday when it announced plans to return to its roots as a manufacturing company by spinning off its finance arm and commercial real estate holdings. Investors loved this news and the stock price immediately spiked. In fact, the stock gapped higher last Friday morning, and that gap could play a role in what happens after the company announces earnings Friday morning.
Looking at the daily chart you can see the gap the major announcement created. I find it ironic that the company made this announcement only one week ahead of the earnings report. The fact that they did it this way makes me leery about the first quarter earnings results.
Over the last four quarters, GE has beat earnings estimates by a penny on three occasions and matched expectations in the fourth instance. Of these earnings announcements, two created a small gap up and the other two created a small move down. In other words, the earnings announcements didn’t impact the stock price the way announcements do for most other stocks.
With this in mind, I wouldn’t look for GE stock to move much after Friday’s earnings report. What I see happening is the stock drifting down a little and filling the gap that was created in the daily chart last week. After it fills the gap, I can see the former top of the range acting as support for the stock.
Looking at the expectations and the sentiment indicators ahead of the report, we see that analysts expect GE to report earnings per share of $0.30 for the quarter. That is down from the $0.56 reported in the previous quarter, and also down from the EPS of $0.33 reported for the first quarter of 2014.
The sentiment toward GE is mixed, with a short interest ratio of 2.3. Analysts have 10 “buy” ratings and nine “hold” ratings on the stock.
The most interesting item in the sentiment is the put/call ratio. The ratio is currently at 0.53. That is the lowest reading of the past year. What is really interesting is that the ratio was all the way up at 1.34 in mid-February, which was the highest reading of the past year. Rarely do we see the highest reading and the lowest reading being reached within two months of each other.
I wouldn’t be in a rush to buy or sell GE stock ahead of the earnings report. However, I would be a buyer of the stock once it comes down near that $26.50 level.
GE is still a solid company and it stands to reap benefits from spinning off its GE Capital finance arm. The stock also has a dividend yield of 3.7%, which isn’t bad given the current interest rate environment.
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