Monday, November 17, 2014

* General Electric (GE) - Heartbeat: Must Know About The Firm and Option Market in Six Charts

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GE is trading $26.63, up 0.6% with IV30™ up 4.4%. The Symbol Summary is included below.

Provided by Livevol

GE stock is down ~2% in the last year, revenue has been stagnant for three-years and there's a fascinating little game being played with taxes that you just have to see to believe.

First, let's start with the one-year stock return chart.
Provided by Livevol

And now, let's turn to the visuals.

Effective Tax Rate vs. Peers
One of my favorite charts ever from CML is the effective tax rate (actual taxes paid) for the mega caps in the US.  We can see in the last twelve-months that GE has earned $13B in after tax earnings and paid 3.75 in taxes, the lowest of all mega caps in the US (that are actually paying taxes -- believe it or not, there are some mega caps receiving tax rebates).

Provided by Capital Market Laboratories

Effective Tax Rate Trend
This rather a stunning effective tax rate result is not "old hat" but rather a developing trend.  Check out how GE's effective tax rate has been declining linearly over the last four years from over 25% to now 3.7%

Provided by Capital Market Laboratories

Revenue (TTM) vs. Net Income (TTM)
With revenue in the blue bars and net income in the red line, we can see total stagnation on both fronts for the last three-years.

Provided by Capital Market Laboratories

Free Cash Flow vs Net Income, 1-year Change
With free cash flow now in the blue bars and net income one-year change we can see a rather abrupt drop in both  measures over the last three years.

Provided by Capital Market Laboratories

Gross Margin % vs. Effective Tax Rate vs. Peers
We know the tax rate story for GE, but the gross margin % story is a new one to me: it's low relative to peers.  Now there's one HUGE caveat here: creating a peer group for GE is almost impossible.  Is it a conglomerate? Is it a financial?  Is it an industrial?  Just keep that in mind as you peruse the chart below.

Provided by Capital Market Laboratories

Stock Repurchases / Total Assets
One phenomenon that GE has not participate din is the huge stock by back programs in many of the mega caps.  Relative to its peer group, GE is the largest firm and has quite low stock repurchases compared to the others.

Provided by Capital Market Laboratories

Now let's turn to the option market and the Options Tab, below.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$26, $28] by the end of trading on Dec. 19th.

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

Legal Stuff:
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