Industrial conglomerate General Electric Company (NYSE: GE) and GE stock didn’t excite investors with breathtaking earnings results last week, but the Dow component continues to improve its Aviation segment — the second-largest unit — which posted a 7% jump in fourth-quarter revenue.
Combined with the 35% jump in profits and the company’s continued cash return to shareholders, GE stock should reach $36 in the next 12 to 18 months, delivering some 20% returns. And its strong 3.2% annual dividend yield, besting the S&P 500’s 2%, is an added bonus.
The Quarter That Was
Last week, GE delivered earnings from continuing operations of $3.48 billion, or 39 cents per share, rising from from $2.57 billion a year earlier. On an adjusted basis, when taking out one-time gains and costs, GE earned 46 cents per share, which was in-line with Thomson Reuters estimates. Driven by strong improvements in its power and renewable energy businesses, revenue came to $33.09 billion.
GE stock sold off about 5% due to the revenue miss. Wall Street expected $33.9 billion. But with OPEC agreeing for the first time in eight years to a production cut of 1.2 million barrels a day, it’s reasonable to expect General Electric to see more improvements in power, oil and gas, and renewable energy in the near future. And while the transportation and healthcare businesses were light, investors overlooked the fact that GE continues to expect $2 per-share earnings in 2018.
What’s more, the fact that the company reaffirmed its guidance for 2017 of 3% to 5% organic growth, margin expansion and plans to return as much as $21 billion to shareholders suggests confidence in its business.
Likewise, the company’s backlog total, a closely-watched metric of future revenue, continues to climb. And as GE continues to embrace the goal of becoming a high-value added pure-play industrial company, GE stock is poised to benefit from that execution.
Bottom Line for GE Stock
When factoring in possible gains from President Donald Trump’s proposed tax reform and infrastructure spending plans, GE stock currently priced at just 15.5 times fiscal 2018 estimates of $1.91 per share, looks like a bargain.
GE stock is currently trading around $29.80. Assuming GE does achieve $2 per share in 2018, this puts the forward P/E at 15, or four points below the S&P 500 Index. And when applying a reasonable multiple of 18 to those estimates, the stock’s fair value points to $36.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.