Is now the time to bet on General Electric Company (NYSE:GE) and GE stock?
Shares of the industrial conglomerate have frustrated investors, falling 9.1% year to date, and 5.3% over the past year. This compares with a 6.8% year-to-date rise in the S&P 500 index. And, if you’ve held GE stock over the past three years, you’ve gained less than 9%, while the S&P 500 index has risen 27%. But, with some patience, GE stock can still deliver 20% returns in the next 12-18 months, reaching $35 per share.
GE Stock Can Still Pay
GE stock closed Friday at $29.22, about 3.5% off its 52-week low of $28.19. As it stands, only three other Dow stocks — Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM) and Verizon Communications Inc. (NYSE:VZ) — have performed worse than GE among the Dow 30 stocks. The Boston-based company beat earnings estimate on the top and bottom lines, yet GE stock sold off. Investors now want to know if GE stock is still worth waiting for at this point?
General Electric stock has lagged the market for quite some time, but the company pays a solid yield of 3.34%, versus the S&P 500’s 2% yield. GE CEO Jeff Immelt lost some credibility when the company missed its first-quarter cash flow projections by a whopping $1 billion. On the positive side, GE continues to improve its Aviation segment — the second-largest unit — which posted a modest jump in first-quarter revenue.
What’s more, the company blamed the cash flow shortfall on delays in receiving accounts receivable payments. And, CFO Jeff Borstein explained that GE will collect the bulk of these delinquent accounts in Q2, which should help boost EPS when the company reports in July.
Wall Street expects GE to deliver 2017 revenue growth of just 1.2%, while earnings-per-share is expected to grow 9.4%.
These numbers aren’t immediately breathtaking, particularly for growth investors looking for stock appreciation. At the same time, however, General Electric combining its struggling energy operations with Baker Hughes Incorporated (NYSE:BHI) is still a potential catalyst. It’s expected that both companies will then spin off the energy business into its own publicly-traded entity.
GE has had success of these types of spinoffs. Take, for instance, its Synchrony Financial (NYSE:SYF) credit card business, which was spun off 2015. Are these sufficient catalysts to own GE stock now? Analysts forecast 2018 EPS of $1.89 per share, which assumes growth of 16.2%, while 2018 revenue of $133.42 billion would rise more than 6% year over year.
Bottom Line for GE Stock
For dividend growth investors looking for value, there’s a case to be made that GE stock, which is priced at just 15 times fiscal 2018 estimates, is the best bargain on the Dow.
Assuming GE achieves management’s forecast of $2.00 per share in 2018, this puts the forward P/E at 15, or four points below the S&P 500 Index. With the company producing solid results in all operating segments, including oil-and-gas, aviation, power and renewable energy, which all topped analysts’ Q1 forecast, GE stock — on the principle of “buy low, sell high” — belongs in growth portfolios, too.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
