Wall Street remains on the fence regarding what’s next for General Electric (NYSE:GE) stock. Back in late May and early June, the conglomerate’s shares rallied. But, in the weeks since, prior enthusiasm has faded, and shares have sold off.
Simply put, the novel coronavirus pandemic continues to affect the company. The prior “rapid recovery” thesis now seems off the table. Add in a turnaround plan hindered by the headwinds. In short, there are plenty of reasons why shares could tread water — or even head lower — from today’s prices.
Sure, you can still build a bull case for GE stock. CEO Larry Culp rides out the storm, and implements his epic turnaround plan. Coupled with a rebound in aviation, and shares have a solid pathway from today’s prices (under $7 per share) back to double digits.
Yet, it may take time for all the stars to align. Until the pandemic comes to an end, don’t expect aviation to return to normal. And, with a depressed aviation business, little else can move this company’s needle. With this in mind, General Electric remains a “wait-and-see” situation.
Continued Headwinds and GE Stock
As InvestorPlace analyst Matt McCall wrote July 24, General Electric was already having problems before the coronavirus outbreak. Before the pandemic, the company’s aviation and healthcare units were areas of strength. But the company’s other business units weren’t doing so hot. Namely, GE Power and GE Capital.
Yet, with the pandemic, GE Aviation became a hot mess as well. As the company’s largest segment, shares can’t bounce back until this flagship business is back on its feet.
Things have slowly bounced back from March’s sudden disruption. But, the aviation unit’s pandemic headwinds remain far from over.
In short, forget about Larry Culp’s epic turnaround plan for now. Culp’s moves are a step in the right direction. But until the company’s flagship unit comes back, these moves alone won’t help put points in the stock.
And, while results may not be as bad as expected (more below), shares in the company’s peers may offer better opportunity.
Upcoming Earnings May Not Be So Bad, But Don’t Bet on It
With major headwinds, most of the analyst community expects a brutal 2020 for General Electric. Yet, outliers like UBS’ Markus Mittermaier have taken a more bullish view on the company’s near-term prospects.
Wall Street consensus calls for GE to burn through $2.5 billion in cash this year. But Mittermaier projects positive free cash flow in 2020. Albeit just $200 million. For a company with a $60 billion market capitalization, this isn’t anything to write home about.
However, it could be a sign things aren’t so dire. The company could surprise with its upcoming quarterly earnings. Right now, projections call for a net loss of 10 cents per share. Sales are expected to be down a staggering 41% from the prior year’s quarter.
But, if the company beats on these numbers, and provides promising guidance, who knows? Investors may see light at the end of tunnel, and shares could move higher again.
Yet, even with this scenario, there’s another key reason why General Electric isn’t a strong stock to buy today. As this pundit recently mentioned, aviation-heavy industrial conglomerates like Honeywell (NYSE:HON) and Raytheon (NYSE:RTX) offer better value than this company’s shares. In short, the risk-return proposition with this high-risk stock may not be in your favor.
Continue to Sit Things Out With GE Stock
So, what’s the bottom line on General Electric right now? The novel coronavirus continues to impact the company’s operations. But everybody knows that full well. Today’s share price reflects these lingering risks.
Yet, that doesn’t make shares a buy. Until commercial aviation gets back to normal, troubles at the company’s flagship unit will continue to hinder CEO Larry Culp’s still-in-progress turnaround plans.
Coupled with the fact that similar aviation rebound plays — like Honeywell and Raytheon — offer better value, and it’s hard to build a bull case.
With earnings due in a couple days, don’t bet on GE stock just yet. The company is far from being out of the woods. And, with better opportunities out there, don’t rack your brain, or risk your capital. Continue to sit this one out.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.