GE Remains Bullish on Order Backlog of $319 Billion

GE Remains Bullish on Order Backlog of $319 Billion
October 25, 2016

 
Last Friday, heavy engineering and technology company General Electric (NYSE: GE) reported mixed third-quarter results. The earnings topped the Wall Street estimates, but the revenue missed the consensus. Furthermore, the company not only slashed its revenue growth outlook for fiscal 2016 but also narrowed its earnings guidance. The investors were naturally unimpressed by the quarterly results and so the stock got battered. There was not much of a change in the trend in the first day of this week. The hammered stock closed at $28.92 on Monday.

The Fairfield, Connecticut-based company, which offers Brilliant Manufacturing Software, reported third-quarter 2016 revenue of $29.27 billion, up 4% from $28.03 billion in the third-quarter of 2015. GE missed the analysts’ revenue estimates of $29.6 billion.

For the quarter ended September 2016, the provider of cyber security for operational technology recorded net earnings from continuing operations of $2.097 billion or $0.23 per share, up from $1.965 billion or $0.19 per share in the prior year’s similar quarter. On a non-GAAP basis, the Q3 2016 net earnings decreased to $2.879 billion or $0.32 per share, from $2.920 billion or $0.29 per share in Q3 2015. The Q3 non-GAAP revenue exceeded the Street estimates of $0.30 per share.

For the fiscal 2016, GE now anticipates revenue growth in the range of 0% to 2%, from the prior guidance of between 2% and 4%. The company also narrowed its full-year 2016 earnings to a range of between $1.48 and $1.52 per share, from $1.45 to $1.55 per share forecasted at the end of the second-quarter. GE has certainly painted a dull picture for the rest of the year. However, considering the sharp decline we had in the past few days, we can definitely say that the market has already factored in the negative news.

There are certainly a lot of positive developments to look at. GE received $26.9 billion worth orders in the third-quarter, up 16% from the prior-year period. At the end of the third-quarter, the order backlog stood at $319 billion.

In November 2015, the company completed the $10 billion acquisition of Alstom power and grid business. GE stated that the order backlog for Alstom remains strong at $5.2 billion. The company is also exploring additional restructuring possibilities in the current quarter. GE also forecasted an improvement in the FY16 cash outlook to $32 billion, up from the prior guidance range of between $29 billion and $32 billion at the end of the second-quarter.

A week before, GE announced that it would acquire turbine blades manufacturer, LM Wind Power, for $1.65 billion. The company also has plans to purchase two 3-D printer companies, namely Sweden’s Arcam AB and Germany’s SLM Solutions Group AG. In this regard, GE is looking for shareholders’ approval. The planned acquisition is valued at $1.4 billion.

The company has already returned $30 billion ($8 billion as dividend and $22 billion through stock buyback) to investors, much above the planned $26 billion.

As the chart reveals, the stock has bounced off the support at 28.50. The stochastic oscillator, which is climbing out of the oversold region, indicates the possibility of a strong trend reversal.

General Electric - Technical Analysis - 25th October 2016

Thus, a trader should switch to a long position through the purchase of a one touch call option, with target price of $31 or lower. A four week time span would be more than enough for the price to reach the anticipated target.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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