To say that General Electric (NYSE:GE) stock is cheap would be quite an understatement. Even at the bottom of the 2008-2009 financial crisis, GE shares weren’t as low as they are today.
You’d have to look all the way back to 1992 to find GE stock trading at prices like this. And with a measly forward annual dividend yield of 0.65%, buying and holding the stock today doesn’t seem like such a great idea.
Value investors really need to consider whether there is actual value here. Delving into General Electric’s latest fiscal data might provide more insight into whether the stock is worth buying at such a heavily discounted price.
Worst Possible Timing
The onset of the novel coronavirus has impacted numerous sectors of the economy. This certainly includes commercial aviation, which comprises a substantial part of General Electric’s business. The company is also famous for household appliances, another sector that’s been impacted by the Covid-19 outbreak.
General Electric, it appears, was eager to blame the pandemic for the company’s woes when it reported its first-quarter earnings data. In fact, CEO Larry Culp and CFO Carolina Happe collectively used the word “Covid” at least 45 times during the recent conference call.
Specifically, General Electric blamed Covid-19 for an approximately $1 billion reduction in free cash flow. The company had previously anticipated $300 million to $500 million worth of negative impact on free cash flow from the pandemic.
So, in terms of free cash flow, things were at least twice as bad as the company had expected. And of course, the stock market loathes negative surprises, so now we’ve got an ultra-low GE stock.
“In the eight weeks since [the update], the world has fundamentally changed… And we all know that the Covid-19 pandemic evolved rapidly, hitting hard and hitting fast,” commented Culp. Again, the overriding theme here is that the pandemic is to blame for General Electric’s fiscal issues.
Free cash flow wasn’t the only data point that undoubtedly disappointed GE stock investors. For example, General Electric’s total revenues came in at $20.52 billion, representing an 8% decline.
It’s also worth noting that the company has withdrawn its fiscal outlook for the full year. Investors might choose not to consider that a big deal, though, since General Electric certainly isn’t the only company that’s hesitant to make full-year predictions.
The Experts Weigh In
Perhaps it’s justifiable for General Electric to blame the company’s poor financial performance on the coronavirus. Evidently, Culp isn’t the only one doing this. There are analysts placing the blame on the pandemic as well.
CFRA analyst Colin Scarola, for instance, expressed his projection that General Electric will generate a loss this year. In doing so, he cited “high exposure to COVID-19 disrupted end markets.” Hence, Scarola reduced his price target for GE stock from $7 to $6.
Melius Research analyst Scott Davis similarly blamed the coronavirus for General Electric’s recent difficulties. He stated, “GE is our most pandemic impacted name and the timing of this mess is cruel.”
Interestingly, though, Davis’ price target of $13 is much more ambitious than Scarola’s aforementioned $6. Davis also wrote, “Bring back [Jeff] Immelt,” though it’s possible that he was being facetious.
J.P. Morgan analyst Stephen Tusa was more pessimistic than Scarola and Davis. His price target for GE stock is a mere $5. Tusa also provided caustic commentary, saying, “I can’t find words to describe how bad the second quarter is going to be.”
General Electric’s cash-burn issue is unquestionably a major concern. Plus, the company’s reliance on the troubled aviation and household-appliance industries does not bode well for General Electric’s future. So, a $5 price target isn’t really out of the question.
The Takeaway on GE Stock
If you choose to hold GE stock long enough, you’ll probably profit or at least break even. The low dividend payouts won’t be of much help, unfortunately. And with practically everyone agreeing that the pandemic has devastated General Electric’s financial performance, it’s awfully difficult to justify taking a position in the stock today.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
