Successful Divestment of Financial Arm turns GE Bullish

Successful Divestment of Financial Arm turns GE Bullish
April 28, 2016

 
The shares of 124-year old company, General Electric (NYSE:GE) has caught the market’s attention once again. The foremost reason is the company’s move towards its industrial roots and the second one is the fiscal 2016 first-quarter earnings, which beat Wall Street’s estimates. For the reasons discussed below, the analysts’ believe that it may not take long for the stock to hit new yearly highs in the weeks ahead.

For the fiscal 2016 first-quarter, the company reported revenue of $27.85 billion. The revenue estimate of analysts’ was $28.98 billion. The first-quarter net loss was $98 billion or $0.01 per share. Excluding one-time gains and costs, on an adjusted basis, the earnings per share for the first-quarter was $0.21 per share. The estimate of analysts’ was $0.19 per share.

In line with the market expectations, the Boston based company saw a 30 basis points increase in the industrial margins. On a constant currency basis, the increase in margin is 110 basis points. The company’s CEO Jeff Immelt’s vision was to restructure the company as a heavy engineering industry by divesting most of the assets related to GE capital, the finance subsidiary. Immelt also had an ambitious target of realizing $200 billion from divestment. The GE capital was primarily responsible for dragging the GE Corp into 2008 economic crisis.

The company stated that it has entered into an agreement to sell its hotel financing business to Western Alliance (WAL) on Monday. With this agreement, the company has already signed to divest $166 billion worth finance related assets. In fact, $148 billion worth transactions have been completed so far. The order backlog increased 29% to $1.2 billion in the first-quarter. The company’s power business has grown 25% in the past year, while the renewable energy business has recorded a 90% growth. This indicates that the company is forging ahead to achieve its objective of becoming a heavy engineering industry with renowned manufacturing capabilities in the energy and aviation sector.

For the fiscal 2016, GE expects earnings in the range of $1.45 to $1.55 per share, which indicates a growth of 2% to 4% on a yearly basis. The company has also stated that it would return $26 billion to shareholders. Thus, fundamentally, any dip in the stock price should be used as an opportunity to enter a long trade.

Technically, two rock solid supports, one at 28 and another one at 30, exists for the stock. A crossover above the 12-month high of $32.05 will take the stock to at least $37 and even up to $41. The stock is also well supported by the 50-day moving average at 30.49. The RSI indicator reading of more than 50 shows that consolidation is going on and it is only a matter of time when the stock would flare up.

General Electric - Technical Analysis - 28th April 2016

Thus, nothing but a one touch call option would result in profit for a binary options trader. Giving at least four weeks expiry time for the contract would ensure success in the trade. Furthermore, a target price of $35 or less would increase the probability of trade ending in the money.

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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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