Culp's Comments Fuel Upside for General Electric Stock

GE CEO Larry Culp called 2019 a "reset year"

by Patrick Martin

Published on Mar 14, 2019 at 10:27 AM
Updated on Mar 14, 2019 at 10:31 AM

The shares of General Electric Company (NYSE:GE) are higher today, shaking off the industrial conglomerate's 2019 outlook that fell short of expectations. More specifically, the company forecast adjusted full-year earnings of 50 cents to 60 cents per share, compared to the 70 cents per share consensus estimate, and said negative cash flow in its troubled power division could reach $2 billion.

Nevertheless, CEO Larry Culp called 2019 a "reset year," and said the company's power business "will get significantly better in 2020, and we expect positive free cash flow in 2021." Plus, J.P. Morgan Securities analyst -- and noted GE bear -- Stephen Tusa commented on "an optimistic tone" in the guidance. As such, GE stock is up 3.5% to trade at $10.37.

On the charts, General Electric stock has fared well in 2019, tacking on 42.5%. Put a different way, GE has turned in only two weekly losses since mid-December. However, the shares' 200-day moving average kept a tight lid on last week's breakout attempt, and above here is the $11 level, which previously served as support for most of 2018. 

There's a strong put bias in GE's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.11 ranks in the 100th percentile of its annual range. This indicates the rate of put buying relative to call buying has been much quicker than usual.

Echoing this, the security's Schaeffer's put/call open interest ratio (SOIR) of 4.08 ranks  in the 97th percentile of its 12-month range. This points to a heavier-than-usual put-skew among short-term options trader, with the soon-to-expire March 9 put home to 293,279 outstanding contracts.

Meanwhile, the stock's Schaeffer's Volatility Scorecard (SVS) stands at a 82 out of a possible 100. This means GE has tended to make outsized moves over the last year, compared to what the options market had priced in -- a potential boon to premium buyers.

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