GE Earnings Preview – Is General Electric Finally a Buy?

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General Electric Co. (GE) reports earnings on Friday, and judging by the 13% run-up in the last month, Wall Street is hopeful results will be impressive.

General-Electric-GE-stock-blue-chip stocksAccording to the most recent estimates, GE earnings per share should come in at 26 cents on $28.65 billion in revenue for its third quarter. That’s down on both the top and bottom line from a year ago, with General Electric earnings per share at 38 cents a year ago on sales of nearly $36.2 billion.

Of course, it’s important to remember that GE stock has been restructuring and selling off certain parts of its business, including various financial divisions, while introducing a plan to unwind some $26.5 billion in real estate assets. So it may not be completely fair to say that General Electric is in such steep decline.

But while GE stock may not be seeing massive drops in its operations, it’s safe to say the blue-chip industrial giant hasn’t exactly been in growth mode. Revenue has gone almost nowhere since the Great Recession as the company has been stuck in a rut; and GE stock has lagged significantly, with shares still about 40% under their 2007 peak, while the market at large has reclaimed its pre-crisis levels.

Thus, the upcoming General Electric earnings report should be an ideal indicator of whether GE stock is back on “buy” watch … or whether all this turmoil is just the illusion of progress for a dinosaur of a company that hasn’t evolved fast enough.

GE Earnings – Power, Aviation and Healthcare Segments Key

Digging into the details, investors can expect continued trouble from General Electric’s energy segments amid a rather rough environment for oil and gas stocks that contract with GE. For instance, last quarter the Oil & Gas segment saw a 15% dip in revenue on weakness in the sector.

That’s unfortunate, since this segment is the second-largest revenue driver. However, the biggest sales source for GE is its Power & Water segment, which serves utilities. This division continues to hold strong, with reliable single-digit growth, and investors can expect that to continue.

The wild cards for GE stock in its upcoming earnings report will be Aviation, which can be quite “spiky” thanks to the big price points on some of these sales, and in its healthcare division that has fallen on tough times. After all, it was only back in January that GE was touting its health products as the bright spot of the company … but come June 30, General Electric had seen a 3% decline in revenue and a 1% decline in profits through the first six months of 2015 compared with 2014.

Blame a strong dollar all you want for some of this performance, but investors are going to have to see some kind of growth and stability here — particularly as GE stock sells off various assets to streamline the business and theoretically focus on its core.

There are reasons to be hopeful this time around. Nelson Peltz’s Trian Partners fund recently made a $2.5 billion investment in General Electric stock, and Warren Buffett and Berkshire Hathaway (BRK.A, BRK.B) still have a substantial $300 million position in GE stock, too.

Throw in improving sentiment (with GE stock up 11% year-to-date in a down year for the market at large) and a dividend yield north of 3%, and you have reasons to believe General Electric earnings could be the beginning of a new era.

Of course, with a forward price-to-earnings of 18.3 and a lack of easy comps now that GE Capital is being unwound, investors may not quite have the same confidence they did a few months ago, resulting in investor action on any excuse to take money off the table.

Me? I’m cautiously optimistic GE earnings will go well … but I’m waiting to see what happens in the Power & Water, Healthcare and Aviation segments before I buy.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/stock-general-ge-electric-earningspreview/.

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