Blue-chip titan General Electric Company (NYSE:GE) is suffering a big fall on Friday, down 3.2% to test lows not seen since the middle of 2015. This rout in GE stock comes despite what was mostly an encouraging earnings report.
General Electric announced an adjusted profit of 28 cents per share, topping estimates by 3 cents. That came on an 11.8% drop in revenue, though the top line of $29.6 billion still beat consensus expectations. The quarter was led by strong growth in its power and renewable energy divisions.
It wasn’t all perfect — transportation and energy connections/lighting declined for the quarter — but overall, there was more to like than not.
And this followed a strong performance in the first quarter as well, with earnings of 21 cents per share beating estimates by 4 cents.
The thing weighing down GE stock was a lack of extended forward guidance. Management sees earnings of $1.60 to $1.70 per share for the year overall, versus Wall Street’s mark of $1.62. The company is also looking for organic top-line growth of between 3% and 5%.
But no guidance into 2018 was provided, and that brought out the sellers.
The drop in General Electric shares to a three-year low comes ahead of the retirement of CEO Jeff Immelt, who took over from Jack Welch in 2001 and is set to retire in December. John Flannery, current President and CEO of GE Healthcare, was named as Immelt’s successor on June 12.
And it caps a string of poor performance: GE stock, which has the largest weight in the S&P industrial sector, is down about 18% for the year-to-date.
But some value is now baked into the price, with the stock closing a long standing gap from early October 2015 and is trading at a 4% discount to its Reuters StarMine intrinsic value of $27. Moreover, General Electric offers a 16% discount to the analyst median price target of $31.
From a technical standpoint, more downside could loom. Yet more downside could loom if GE stock violates the support line from the 2009 bear market low, at $23.60. From there, watch out for the 2015 lows between $18-$19, which would be an additional 22%-24%.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
