By: Brendan Gilmartin
General Electric (GE) is slated to report 3Q 2012 earnings before the bell on Friday, October 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.
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 3Q EPS is $0.36 per share (range is $0.35 to $0.38) on revenue of $36.9 bln (Source: Yahoo! Finance).
Among the concerns surrounding GE is recent profit warnings firm several industrial bellwethers:
- 10/10: FedEx (FDX) cautioned slow economic growth is prompting cost-cuts in order to meet financial goals.
- 10/09: Engine maker Cummins Inc. (CMI) cut FY revenue and EBIT estimates on uncertainty in the global economy.
- 09/24: Caterpillar (CAT) told analysts a recession is possible in 2013; Europe in recession; Tempered forecasts for 2015.
- 09/27: According to a report in the Wall Street Journal, CEO Jeff Immelt offered up a positive outlook for GE's industrial businesses during an infrastructure meeting with analysts, sending shares 3% higher on September 27. Immelt predicted 10% organic growth this year, the high end of previous guidance of 5% to 10%, with strength in the aircraft-engine, medical-device and oil and gas businesses. Finally, GE plans to continue its share repurchase program with the intent of reducing the amount of shares outstanding to 10 billion, down from 10.6 billion.
- 09/07: GE declared a $0.17 per share quarterly dividend, bringing the yield to 2.97%.
- 09/05: Citigroup reiterated a Buy rating and increased its price target on GE from $23 to $25, according to a post on Benzinga.com, due in large part to current valuation.
- 09/05: J.P. Morgan increased its price target on GE from $21.00 to $22.00, according to Benzinga.com. The firm also maintained an Overweight rating and attributed the positive outlook to improving fundamentals, particular in the energy and industrial segments and noted the GE growth story is poised to revive.
GE shares are up more than 27% from the June lows - a notable move for GE headed into 3Q earnings. Earlier this month, GE shares reached a 52-week high of $23.18 and best level in close to four years. That would be the initial resistance level should earnings top the high end of forecasts. Conversely, support is at $22.50 (just above the 20-Day SMA), with downside risk to $21.00. (Chart courtesy of StockCharts.com)
Despite concerns over softness in the global economy and dour profit outlooks from industrial counterparts (CAT, FDX, CMI), GE has been breaking out over the past couple months, en route to the highest level in close to 10 years. An improvement in the GE Capital segment (accounts for ~50% of GE's overall business), a positive view on the industrial segments from CEO Jeff Immelt and share buybacks have contributed to the gains. In light of this strength, GE is vulnerable to any missteps when it reports 3Q earnings.
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