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Earnings Outlook: GE’s stock slips as investors brace for more volatile trading after earnings

Shares of General Electric Co. slipped Monday, but pared a sharp loss earlier in the session, a day before the industrial conglomerate is scheduled to release its first-quarter earnings report.

There may be some concern among Wall Street analysts, who have cut their earnings and revenue estimates significantly over the past few months, that GE might reduce their 2022 financial guidance now that they’ve had more time to assess the negative effects of Russia’s invasion of Ukraine.

The stock
GE,
+0.10%

eased 0.3% in afternoon trading, but was down as much as 2.8% at its intraday low of $86.58.

GE is slated to reveal its latest earnings report before Tuesday’s open.

Analysts surveyed by FactSet are expecting, on average, earnings per share of 18 cents, total revenue of $16.85 billion and free cash flow of negative $816.5 million. That compares with EPS of 24 cents, revenue of $17.12 billion and free cash flow of negative $845 million, according to FactSet.

The current estimates are a far cry than what they were just three months ago, as the FactSet consensus at the end of January was 41 cents for EPS, $17.60 billion for revenue and negative $169.7 million for free cash flow.

Just this month, all 18 analysts surveyed by FactSet have cut EPS estimates, as the consensus fell from 23 cents at the end of March.

Concerns over a hit to the global economy from rising inflation, the Ukraine war and renewed COVID-19-related lockdowns in some countries has likely weighed on analyst expectations, as they have hurt investors’ outlook for the broader stock market.

GE’s stock has slipped 2.6% over the past three months, while the SPDR Industrial Select Sector exchange-traded fund
XLI,
-0.62%

has lost 3.3% and the S&P 500 index
SPX,
-0.08%

has shed 2.4%.

On March 10, GE had announced the suspension of its operations in Russia, which the company said represented less than 2% of overall revenue. And although at the time, GE reiterated its outlook for 2022 guidance for earnings per share of $2.80 to $3.50 and for free cash flow of $5.5 billion to $6.5 billion, Chief Executive Larry Culp had said that was because there were “too many uncertainties,” and it was “probably premature” to incorporate those into the full-year outlook.

That didn’t stop analysts from adjusted their full-year estimates, as the consensus fell for EPS to $3.23 from $3.34 at the end of February, and for revenue to $77.28 billion from $78.17 billion, but rose free cash flow to positive $5.82 billion from $5.74 billion.

Options suggest more volatile post-earnings stock move

The stock options market is prepping for a more volatile than usual stock reaction to earnings on Tuesday.

An options strategy known as a straddle, which is a pure volatility play that involves the simultaneous buying of bullish (calls) and bearish (puts) options with at-the-month strikes expiring Friday, is priced for a one-day, post-earnings move of $5.08 in either direction, according to data provided by Option Research & Technology Services (ORATS) Principal Matt Amberson.

That compares with the average move over the past 12 quarters of $3.83, Amberson said.

Basically, a buyer of a straddle expiring Friday would need the stock to move more than $5.08, either up or down, to make money. Based on current prices, that price move would represent a percentage move of 5.7%.

The day after the past 12 quarterly reports, GE’s stock has gained 7 times and declined 5 times, according to FactSet data. It has only moved more than 5.7% three times.

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