3 Reasons the Latest Earnings Report Was Encouraging for GE Stock

Advertisement

The first-quarter results for General Electric (NYSE:GE), reported late last month, were rather positive for the company’s longer-term outlook. Its largest division, Power, which has been troubled, showed further signs of “green shoots,” while the owners of GE stock should be pretty upbeat about the company’s overall Q1 results and financial position.

General Electric Stock ge stock

Source: Shutterstock

Meanwhile, the most prominent bear on General Electric apparently couldn’t find anything too horrible to say about the company’s results and outlook. Furthermore, another analyst was extremely bullish about the results and GE stock.

Here are my three main takeaways from GE’s Q1 results.

Power Continuing to Show Green Shoots

The company’s extremely important Power unit, which had been written off as dead by many pundits, continued to show “green shoots,” i.e., signs that it’s beginning to turn the corner. Given the segment’s results, one could even argue that it tremendously improved, although the company said that the unit’s numbers were boosted by the favorable timing of deals.

Still, the value of the unit’s organic orders, i.e. its orders excluding acquisitions and divestments of units, rose 14% year-over-year, while its sales fell only 4% YoY. That compares with a 19% YoY decline in orders in Q4 and a 25% YoY plunge in revenue.

The revenue of Gas Power, one of Power’s supposedly troubled businesses, fell only 5% YoY, surpassing GE’s target, and its orders surged 24%. The top line of the company’s oil and gas businesses jumped 8% organically, while its orders surged 8%. GE Capital is expected to lose $500 million-$800 million this year, but it’s projected to break even by 2021.

Perhaps most impressively and importantly for General Electric, the unit’s backlog rose $1 billion versus the previous quarter. Finally, although the unit’s operating profit dropped 71%, partly due to GE’s sales of parts of the business, the fact that the segment generated operating profit of $80 million should be encouraging for the owners of GE stock.

Upbeat Financial Results

The value of GE’s orders jumped 9% YoY organically, while its industrial revenue increased 5% YoY. The company’s earnings per share, excluding certain items, came in at 14 cents, versus analysts’ consensus outlook of 9 cents.

Its overall revenue was in-line with the consensus estimate, and it maintained its full-year guidance, including EPS of 50 cents-60 cents, excluding certain items. GE also maintained its industrial free cash flow guidance, excluding certain items, of between a loss of $2 billion and break-even. GE’s overall backlog rose 6%.

In general, then, the value of GE’s orders rose, its Q1 profit beat expectations, and it’s performing in-line with CEO Larry Culp’s turnaround plan.

The cash held by the company’s industrial businesses, excluding its Baker Hughes unit, rose by $200 million to $17 billion during the quarter, and General Electric continues to have access to $35 billion of additional bank loans.

Looking at all of GE’s results and its financial data, it doesn’t appear at all like a company that’s in the process of going under. Most GE stock bears had predicted late last year that the company was well on its way to bankruptcy.

Analysts Are Getting Positive

JPMorgan’s Stephen Tusa, the most noted bear on General Electric, had to admit that the company’s results were”far from a disaster,” according to a Bloomberg article posted on Yahoo Finance. Even the analyst’s bearish comments were far from nightmarish for the owners of GE stock.

Specifically, he called 2019 consensus estimates “stretched,” complained that the company’s free cash flow was “lumpy,” and, according to Barron’s, warned that GE would have to pump an unspecified amount of cash into GE Capital, which he said is worthless.

But Tusa apparently didn’t question the future solvency of the overall company, say that its free cash flow would reach unsustainable levels, or warn that its Power business was going down the drain.

Meanwhile, William Blair analyst Nicholas Heymann said, “GE’s first quarter helped to further diminish the perceived risk that further financial risk or material fundamental shortfalls are likely to now emerge at GE.”

Heymann thinks that General Electric stock can reach $14-$16 per share, the article stated.

The Bottom Line on GE Stock

GE’s Power business is showing plenty of signs that it’s beginning to turn around, the company’s overall results were pretty good, and the cash position of its core industrial businesses actually improved.

Under the leadership of a CEO the Street appears to trust, the company says that its turnaround is progressing in-line with expectations and that GE Capital’s problems are manageable. Finally, even the most prominent General Electric bear didn’t issue any dire warnings.

I’d say that GE stock looks poised to reach Heymann’s target within 18 months, assuming that the U.S. doesn’t enter a recession during that time.

As of this writing, the author did not own shares of any companies mentioned.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


Article printed from InvestorPlace Media, https://investorplace.com/2019/05/3-reasons-the-latest-earnings-report-was-encouraging-for-ge-stock/.

©2024 InvestorPlace Media, LLC