General Electric Company (Ticker Symbol: GE) released its second quarter earnings report that came in better than expected while raising its yearly guidance. The company reported an earnings per share beat of .17 cents per share vs. Wall Street analysts’ estimates of .12 cents per share. Additionally, General Electric reported a revenue beat of $28.83 billion vs. Wall Street analysts’ expectations of $28.68 billion. The American multinational conglomerate also raised its 2019 earnings forecast from .50 to .60 cents per share to .55 to .65 cents per share.
General Electric’s industrial free cash flow, one of the most closely watched metrics by investors, reported for the second quarter was negative one billion dollars, which was near the higher end of Wall Street analysts’ expectations. Industrial free cash flow shows the amount of money the company has left after paying for operating expenses and capital spending. General Electric raised its guidance for its 2019 industrial free cash flow from negative $2 billion-Flat ($0) to a range between negative $1 billion to $1 billion. The company stated that the cash flow for the quarter was helped by improvements in its power business.
Above is a chart of General Electric stock over the past 20 months. The stock started off 2018 in a massive downtrend from the year prior. General Electric eventually found some support in the second quarter of 2018 around the $12.00 level while forming a descending triangle pattern over the next six months. In a descending triangle, the bottom part of the triangle appears flat and the top part of the triangle has a downward slant. Buyers come in at the lows and prices move higher up. Prices make a lower high, which brings in more sellers and prices retest the old lows. General Electric broke out of this pattern to the downside in November of 2019, led by a disappointing fourth quarter earnings report.
The stock broke out of that pattern and began to trade lower until finding support around the $6.50 price level. General Electric began to form a Double Bottom reversal pattern. A Double Bottom occurs when the price of an asset reaches a low price, has a small rally, then retests that low failing to break below it. The pattern is confirmed once it breaks above the high between the two prior lows. General Electric broke out of that pattern and began to rally nearly 40%. Since then, the stock has been trading within a horizontal channel between the prices of roughly $9.00 and $10.75.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 11 analysts offering 12-month price targets, the average price target for General Electric’s stock is $10.56. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $9.03.
Investors traditionally flocked to the American staple for its dividend but General Electric cut that dividend in October of 2018 from .12 cents per share quarterly to .01 cent per share. News came out today from Bernie Madoff whistleblower Harry Markopolos, following the conclusion of a 7-month investigation into General Electric’s financial and accounting statements, as he stated that, “General Electric is a bigger fraud than Enron.” This statement immediately sent the stock lower. Investors in the space should look to GE’s next earnings release on October 30th for fresh news within the company.