Superstar CEO Larry Culp recently declared that General Electric’s (NYSE:GE) transformation is “accelerating.” After several rough years, GE stock holders had better hope that Culp’s assertion is more than just a typical CEO hype job.
Don’t get the wrong impression here. Culp inherited a real mess of a company when he accepted the job in late 2018. It was heartbreaking to see General Electric, an inter-generational American mainstay of a company, in decline.
Culp seems to be helping General Electric stage a turnaround, but it’s a gradual process. The onset of the novel coronavirus earlier this year certainly didn’t help. Just as GE stock was starting to drift upward, the pandemic threw a wrench in the works.
General Electric is basically an aviation and aircraft engine company now, and 2020 hasn’t been easy on that sector. Still, perhaps we can dig up some data to confirm Culp’s turnaround thesis for General Electric.
A Closer Look at GE Stock
Over the past 20 years, GE stock has printed a disheartening series of lower highs and lower lows. Market technicians know that this is bearish, so the bulls will want to break this pattern as soon as possible.
However, accomplishing this would require a big leg up in the GE stock price. Specifically, we’re talking about a push past the $10 level. The share price would have to get there and, more importantly, stay there without dropping.
There’s no reason why the bulls shouldn’t be able to do this in 2021 if not this year. Remember, GE stock’s 52-week high is $13.26. We’ve been there before, so we can get there again.
In terms of valuation, GE stock has a trailing 12-month price-earnings ratio of 21.08. That’s quite reasonable and it suggests that GE shares are a decent buy-and-hold for value-focused investors.
Better Than Expected
For a troubled company like General Electric, investors shouldn’t expect massive earnings or revenue. During a global pandemic, just beating the analyst community’s expectations is an accomplishment.
With General Electric avoiding an outright loss in the third quarter of 2020, investors had much to celebrate. In terms of quarterly earnings, the analysts were bracing for a net loss of 6 cents per share. Yet, the actual result was earnings of 6 cents per share – positive, not negative.
Granted, that result represents a 60% decline, but it’s still much better than what the experts had predicted. Plus, General Electric posted quarterly industrial free cash flow of $514 million. That’s a huge beat compared to the average analyst estimate of -$1.03 billion provided by FactSet.
More Than Aviation
So, let me modify something I said earlier. I suggested that General Electric is essentially just an aviation company now. However, let’s not ignore the company’s other segments.
General Electric did see a sizable third-quarter decline in its aviation segment revenues. That’s understandable, though, since the pandemic has had a negative impact on the travel industry.
But let’s look at a couple of other business segments. For instance, General Electric’s quarterly health-care revenue totaled $4.57 billion. That’s better than the expectation of $4.14 billion.
Furthermore, General Electric’s quarterly power segment revenue came to $4.03 billion, beating the FactSet consensus estimate of $3.89 billion. Additionally, the company’s renewable energy segment revenue totaled $4.53 billion for the quarter, slightly exceeding the expectation of $4.48 billion.
In light of all this, Culp had every right to say, “While our work continues, GE’s transformation is accelerating.” Hopefully, we’ll see some improvement in the company’s aviation segment when the broader economy eventually recovers.
The Bottom Line
I’m glad to conclude that Culp’s bright outlook is justified. GE stock is starting to perk up after years of decline. Not every one of General Electric’s business segments is improving, but the prospects are looking better overall.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.