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By: Brendan Gilmartin, VP Research and Content

General Electric (GE) is slated to report 1Q 2013 earnings before the bell on Friday, April 19. Results are typically released at 6:30 a.m. EST and will be followed with a conference call at 8:30 a.m. GE's earnings are often viewed as a barometer on the overall health of the U.S. and global economy. Therefore, GE has the potential to influence broader markets, including the index futures, currencies, and other broad market indicators, particularly if the results are far outside the band of consensus estimates.

Outliers And Strategy

  • GE's EPS have topped estimates by an average margin of 2.0% over the past 4 quarters. A figure close to the high end of forecasts would therefore be seen as a positive signal. Revenue is the next critical measure.
  • The consensus for 1Q EPS is $0.35 per share (range is $0.34 to $0.37) on revenue of $34.67 bln (Source: Yahoo Finance).
  • GE's earnings tend to impact other industrial conglomerates such as Siemens (SI), United Technologies (UTX) and Honeywell (HON).


Recent News

  • 04/08: GE announced an agreement to acquire Lufkin Industries (LUFK) for approximately $3.3 billion.
  • 03/11: Nomura Securities downgraded GE from Buy to Neutral according to a post on StreetInsider.com. Excluding GE Capital, the firm believes GE trades at a slight premium to the likes of United Technologies, Emerson (EMR) and 3M (MMM). Nomura also believes the good news on the economy is priced into the shares at these levels. The price target is $24.
  • 02/15: GE declared a $0.19 per share dividend on the outstanding common stock. The shares are now yielding 3.34%.
  • 02/12: GE said it was selling its remaining 49% common equity interest in its joint venture with Comcast (CMCSA), which includes NBC Universal (NBCU), as well as the NBCU floors in 30 Rockefeller Center, for $18.1 billion. In conjunction with the sale, GE plans to accelerate its share repurchase program to approximately $10 billion in 2013.

Technical Review

Since touching a 52-week high of $23.90 on March 8, GE shares have been trending lower and have nestled into a tight range in advance of the 1Q 2013 earnings release. The shares are currently at the low end of a trading channel between $22.75 and $23.90. Should earnings surprise to the downside, GE could potentially violate the low end of the range and slip toward $22.00, with further downside risk to the 200-Day SMA near $21.50. Conversely, resistance is at the aforementioned peak near $23.90. (Chart courtesy of StockCharts.com)

Summary

Sentiment surrounding GE is fairly upbeat in advance of the 1Q earnings release on April 18, thanks to evidence of an improving macroeconomic backdrop, strength in the energy services segment thanks to rising prices, a sharp turnaround at GE Capital, and the sale of its remaining interest in NBC Universal for $18.1 bln. From a fundamental standpoint, the picture is even brighter, with an attractive dividend payout of well above 3.0%, and a commitment to share repurchases totaling $10 bln through the end of the year. But with the shares range-bound of late, the market is signaling that much of the good news is priced in. At 16.4x trailing earnings, GE shares are trading at a premium to the 5-year average of 13.9x and 7.7% cash flow, well above the historical norm of 6.1%. With that said, look for earnings at or above the high end of consensus views in order to push the shares higher from here.

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Source: GE Shares Slipping Ahead Of Q1 Earnings On Valuation Concerns