GE Earnings Spike Capped By Trend Line

January 27, 2021

Shares in General Electric are trading a little higher pre-market. Its been a volatile week for the company’s stock price which saw a sharp reversal lower yesterday despite a better than expected set of fourth-quarter earnings.

Shares in GE have been firmly higher over recent months with the company locking in an impressive 120% recovery off the May 2020 lows posted in response to the outbreak of the pandemic.

GE shares are now not far off where they were pre-pandemic (13.26 vs 11.32 current). With a positive set of Q4 earnings in the bag, the outlook remains firmly bullish here.

Revenues & Earnings Higher

GE reported fourth-quarter earnings per share of $0.27, beating estimates for a $0.09 EPS. GE shares were initially 10% higher in response to the news before reversing gains over the US session on Tuesday.

Revenues were also better than expected at $21.93 billion versus the $21.83 billion forecast. Despite the better than expected figures, revenues were still 16% lower than the same period a year prior.

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Renewable Energy Saw Firm Growth

The increase in revenues over Q4 was largely a result of growth in its power and renewable energy businesses. Increases in those sectors help offset negative results in GE’s aviation and health care businesses.

Commenting on the results, GE CEO Larry Culp said:

“As 2020 progressed, we significantly improved GE’s profitability and cash performance despite a still-difficult macro environment. Fourth-quarter marked a strong free cash flow finish to a challenging year, reflecting the results of better operations as well as strong and improving orders in Power and Renewable Energy.”

Strong Cash Flow

GE reported strong cash flow over Q4, winding the quarter down with $4.37 billion in industrial free cash flow. This was well above the $2.5 billion GE was forecasting and saw the company’s industrial free cash flow for the year moving into positive territory consequently.

Looking ahead, GE forecasts that it will generate $2.5 billion – $4.5 billion in industrial free cash flow over 2021. While Culp admits that the pandemic “hit us hard” over 2020, the GE CEO said that the firm had been able to actually strengthen its financial position and as a result, will now be able to “play more offense in 2021”.

GE Testing Trend Line Resistance

The rally in GE shares this week was capped by a test of the bearish trend line from 2018 highs. The sell-off has seen price reversing back below the 11.82 level.

However, while price holds above the 10.73 level support, the outlook remains bullish. Above the bearish trend line, there is room for a move up to the 13.24 level next, which is a major resistance level for GE and will be an important technical shift if broken.

By Orbex