Where Will General Electric Go Post-Earnings?

With shares of General Electric (NYSE:GE) trading around $26, is GE an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

General Electric is a diversified industrial, technology, and financial services company that operates worldwide. The products and services of the company range from aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing, and industrial products. General Electric’s segments are Energy Infrastructure, Aviation, Healthcare, Transportation, Home & Business Solutions, and GE Capital. General Electric is a leading provider of a wide range of products, many of which are essential in daily lives of consumers and companies around the world.

General Electric announced today second-quarter 2014 operating earnings of $3.9 billion, with operating earnings per share of $0.39, up 8 percent from the second quarter of 2013. GAAP earnings from continuing operations were $3.6 billion, with earnings per share of $0.35, up 13 percent from last year. Revenues were $36.2 billion for the quarter, up 3 percent from the year-ago period. “GE had a good performance in the quarter and in the first half of 2014, with double-digit industrial segment profit growth, 30 basis points of margin expansion, and nearly $6 billion returned to shareholders,” said GE Chairman and CEO Jeff Immelt. “The environment continues to be generally positive.”

T = Technicals on the Stock Chart are Mixed

General Electric stock has struggled to make significant progress. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, General Electric is trading between its rising key averages which signal neutral price action in the near-term.

GE

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of General Electric options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

General Electric options

15.40%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Average

Average

September Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on General Electric’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for General Electric look like and more importantly, how did the markets like these numbers?

2014 Q2

2014 Q1

2013 Q4

2013 Q3

Earnings Growth (Y-O-Y)

12.90%

-11.76%

7.19%

11.11%

Revenue Growth (Y-O-Y)

3.35%

-8.31%

1.89%

-1.46%

Earnings Reaction

-0.83%*

1.68%

-2.27%

3.52%

General Electric has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been pleased with General Electric’s recent earnings announcements.

* As of this writing

P = Average Relative Performance Versus Peers and Sector

How has General Electric stock done relative to its peers, United Technologies (NYSE:UTX), Phillips (NYSE:PHG), Caterpillar (NYSE:CAT), and sector?

General Electric

United Technologies

Phillips

Caterpillar

Sector

Year-to-Date Return

-5.07%

-0.91%

-14.84%

20.10%

-1.18%

General Electric has been an average performer, year-to-date.

Conclusion

General Electric is a globally diversified industrial, technology, and financial services company. The company today reported second quarter earnings that left investors pleased. The stock has struggled to make significant progress and is currently pulling back. Over the last four quarters, earnings have been rising while revenues have been mixed. Relative to its peers and sector, General Electric has been an average year-to-date performer. WAIT AND SEE what General Electric does next

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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