The share price of multinational engineering giant General Electric (NYSE: GE) peaked two days before the declaration of fiscal 2016 second-quarter results that exceeded the analysts’ estimates. The stock was unable to consolidate near the 12-month high of $33 and lost momentum to hit $29.43 on Monday. The persisting weakness in the price of crude oil and poor performance of the oil & gas division was mainly responsible for the sell-off. However, the latest developments related to the company indicate that the share price would bounce back above the 30 levels.
The Fairfield, Connecticut-based company reported second-quarter net earnings of $2.74 billion or $0.30 per share on revenue of $33.49 billion. In the similar quarter of 2015, the company reported a net loss of $1.36 billion or $0.13 per share on revenue of $29.23 billion.
Excluding costs, the Q2 2016 non-GAAP earnings increased 48% to $4.67 billion or $0.51 per share, from $3.15 billion or $0.31 per share in Q2 2015. The Street estimates were $0.46 per share on revenue of $31.76 billion.
To negate the negative impact of crude price on the oil and gas division, the company is currently implementing cost-cutting measures with an ambitious target of saving $800 million. GE is also on course to divest its finance (GE Capital) business, which caused a dent in its performance in the aftermath of the credit crisis in 2008. The company has so far returned about $18 billion out of the $26 billion planned to be distributed in the form of dividends and share buyback. GE would generate as much as $181 billion in cash from the downsizing of the non-core GE Capital business. The surplus money is expected to be used for acquisitions, if any.
The aviation segment of the company has a backlog of $150 billion, while the power segment is anticipated to ship 110 turbines in 2016. If the price of crude touches $60 per barrel, then it would considerably increase the top line of the company.
Last week, GE also has bagged $1.9 billion orders for the supply of steam turbines and generators for the nuclear power plant (Hinkley Point C project) in the UK. The company has also reaffirmed its FY16 operating earnings in the range of $1.45 to $1.55 per share. GE also anticipates organic revenue growth of about 4%, excluding the effects of currency fluctuations. So, considering the growth prospects, the stock is expected to turn bullish soon.
Technically, the stock broke the first support at 31, which is now expected to act as a major resistance. The next major support for the stock exists at 29. The stochastic indicator has a reading of about 11. Considering the oversold situation, a bounce back is overdue in the stock price.
Thus, betting on a rise in the stock price through a one-touch call option seems to be the best strategy as of now. The strike price for the call option should be $32 or lower. The binary trader should also choose an expiry date in mid-October to increase the probability of success in the recommended trade.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
