By: Brendan Gilmartin
General Electric (GE) is slated to report 2Q 2012 earnings before the bell on Friday, July 20. 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 multiple markets, including the index futures, currencies, and other broad market indicators, particularly if the results are far outside the band of consensus estimates.
Outliers & Strategy
- GE's EPS have topped estimates by an average margin of 3.0% over the past 4 quarters. Revenues are the next critical measure.
- The consensus for 2Q EPS is $0.37 per share (range is $0.37 to $0.38) on revenue of $36.8 bln (Source: Yahoo! Finance).
- GE's earnings tend to impact other industrial conglomerates such as Siemens (SI), United Technologies (UTX) & Honeywell (HON).
- Honeywell shares surged 6.67% on July 18 after 2Q EPS, revenues, and guidance topped forecasts on strong aerospace sales.
- GE is currently trading at 11.4x forward earnings and offering a hefty dividend payout of 3.45%.
- On July 10, engine maker Cummins Inc. (CMI) warned midday that 2Q revenues would fall shy of estimates, due to slower global economic growth and declining order trends in the U.S., along with the strength in the Dollar. GE fell 2% in sympathy.
- In late April, Directors Alan Lafley and Rochelle Lazarus bought more than GE shares on the open market.
- 07/16: A report on Bloomberg.com showed sales of wind turbines in the first half of 2012 fell drastically, pressuring the likes of GE.
- 07/16: Morgan Stanley downgraded GE to an Equal-Weight rating, according to a post on Barron's Online. The firm cited valuation, with the industrial business (non-financial) trading at a premium to its peers, along with pricing competition in the energy segment and weakness in the Wind business. The firm reportedly values GE at $22/share.
- 06/16: Reuters.com, citing German daily Sueddeutsche Zeitung reported GE is planning to buy a medium-sized German business.
- 06/10: According to the Wall Street Journal, GE is actively considering steps to trim down its GE Capital division by breaking off large pieces of the lending business. Part of the unwinding includes selling businesses in the consumer-finance portfolio.
- 06/08: GE declared a $0.17 per share dividend on the outstanding common stock. The yield is now 3.45%.
- 05/16: GE announced the Board of Directors of GE Capital (GECC) declared a quarterly dividend of $475 million payable to its parent GE in the second quarter 2012. In addition, GECC plans a $4.5 billion special dividend to GE in 2012.
GE shares are hovering just above the 50-Day SMA near $19.50. Should earnings surprise to the upside, look for resistance near $20.25, with a possible set-up toward $20.75. Conversely, support is at the aforementioned 50-Day, with downside risk to $19.25, followed by $18.75. (Chart courtesy of StockCharts.com)
GE shares are off the recent highs near $20.75, stemming from the weaker macroeconomic backdrop, strength in the Dollar, declines in the alternative energy business, and softness in the GE Capital segment. Offsetting those concerns are an attractive dividend yield (3.43%), talk of steps to trim down the GE Capital lending businesses, solid earnings from rival Honeywell, and support from the healthcare and infrastructure segments. Keep an eye on the index futures and other broader market gauges when GE delivers its results, given its broad macro exposure.
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