The 138 years old General Electric Company (NYSE: GE) is one of the well-known diversified business groups with operations in approximately 175 countries. The net income of the company declined from $22.2 billion in 2007 to $15.23 billion in 2015. However, on Tuesday, the share price of GE closed at $29.88, which is near the 52-week high of $31.49. So, the market participants are curious to know whether the uptrend is based on fundamentals or a fake move to trap investors.
The operations of the GE group can be broadly classified under two divisions – industrial businesses and financial Services. The fiscal 2015 results indicate that the industrial business contributes 91% of the revenue, while the financial services (GE Capital) make up for the rest.
During the 2008 credit crisis, the financial arm was unable to generate appreciable returns. Furthermore, the financial market volatility forced GE Capital to change its business model, which never pleased investors. In April 2015, the company’s CEO announced that GE will divest most of the assets belonging to the financial arm before fiscal 2018 and keep only those verticals related to the industrial business segment.
Much to the surprise of the investors and market participants, the sale of assets are now expected to fetch as much as $157 billion to the company, compared to a target of $100 billion. The company has promised to distribute as much as $90 billion to investors in the form of dividends and share buybacks. As much as $30 billion was distributed among investors in fiscal 2015.
The divestment enabled the company to concentrate on the core industrial business and acquire the power and grid business of the French company Alstom (ALO) for $10.3 billion. It is the largest acquisition in the history of GE and expected to bring additional revenue of $20 billion for the GE group.
The company also sold its appliance and lighting segment to Haier. For fiscal 2015, the appliance and lighting segment contributed only 8% and 3.8% of GE’s industrial revenue and operating profits respectively.
The company’s order book currently stands at $285 billion. For each of the next three years, GE hopes to achieve at least a 15% rise in earnings. The company has a cash reserve of $10 billion as of December 2015 and expects to garner between $30 billion to $32 billion of cash from operations in fiscal 2016. Thus, fundamentally, the share price of GE is expected to go up.
Technically, as shown in the image below, there is firm support for the stock at 28.50. Major resistance exists at 30.5. The rising channel indicates that the uptrend is intact.
Thus, the share price of GE is expected to make new highs in the coming weeks. Thus, a binary options trader can purchase a call option contract with March-end expiry. The suggested strike price of the call option contract is $32.
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.
