General Electric’s Street-Beating Earnings Support Possible Turnaround

Since CEO Larry Culp took the helm of industrial giant General Electric (NYSE:GE), the company’s long-term investors have hoped for a turnaround. Unfortunately, the onset of the Covid-19 pandemic made it difficult for GE stock to rebound. It’s also frustrating that the share price has gone nowhere since March. When will the breakout moment finally happen?

The General Electric (GE) logo on a building

Source: Sundry Photography / Shutterstock.com

Some folks might have hoped for a huge rally after General Electric reported its financial results not long ago. That rally didn’t happen, even though the numbers looked positive overall.

Still, if the market doesn’t appreciate General Electric’s progress yet, then this is just an opportunity to consider purchasing some shares.

Besides, one prominent Wall Street analyst isn’t sleeping on General Electric now, and is even preparing for upside in the stock price.

GE Stock at a Glance

It’s actually quite extraordinary, if you think about it, that GE stock stayed in such a tight range from March through October. The $105 level has been a magnet for this stock, which is undoubtedly frustrating for some of the shareholders. Moreover, General Electric’s forward annual dividend yield hovering around 0.30% doesn’t do much to sweeten the deal.

Still, it’s important to keep things in perspective. GE stock has doubled since it bottomed out in mid-May of 2020. Besides, the share price is higher than where it started in January, which was around $84. Also, market technicians understand that stocks can stage sharp rallies after going sideways for a long time.

In other words, GE stock won’t stay stuck in a tight range forever. If you still believe in this iconic American company, then there’s no reason to dump your shares now.

The Cash Is Flowing

If you’re still not convinced, then perhaps a look at General Electric’s recently reported financial should get you motivated.

Let’s start with the basics. During the third quarter of 2021, General Electric earned 57 cents per share. That result represents a healthy 19% year-over-year increase. Plus, General Electric beat Wall Street’s expectation of 43 cents per share.

Now, I must acknowledge that the company didn’t get straight A’s on its fiscal report card.

Specifically, General Electric generated third-quarter revenues of $18.42 billion, marking a 5% year-over-year decline. That figure also missed the analysts’ expectation of $19.29 billion in revenues. It’s not a wide miss, though, and there’s positive news within the details. Reportedly, General Electric’s core aviation segment revenues rose 10% on a year-over-year basis.

That’s crucial, General Electric’s focus under Culp has generally revolved around the company’s aviation business.

Here’s what might be the best part of the fiscal report, though. In the third quarter, General Electric recorded industrial free cash flow (FCF) of $1.7 billion.

Unlocking Value

That’s close to double what Wall Street’s analysts were expecting, and is a significant improvement over the cash burn of $199.5 million from the year-ago period.

Such a sharp increase in FCF is impressive in a time of global supply chain issues and American worker shortages.

Certainly, this improvement has left an impression on Bank of America analyst Andrew Obin, who assured that consistent FCF improvements should unlock value for GE investors over the medium term.

Looking ahead, Obin remains confident in General Electric. He asserts that the company’s aviation unit will lead General Electric’s revenue growth turnaround in 2022 by increasing 20% from 2021 levels. Furthermore, Obin projects that General Electric’s 2022 net income will reach $4.36 billion, a figure which would be more than twice the 2021 total.

Bearing all of that in mind, the Bank of America analyst reiterated his “buy” rating on GE stock, and granted it an ambitious $128 price target.

The Takeaway

Challenges presented by supply chain bottlenecks and other issues have made it more difficult for industrial businesses to thrive in 2021.

Yet, General Electric’s turnaround story is still moving forward. The company’s fiscal statistics, while not all perfect, indicate strong per-share earnings and FCF. I give GE a “B” in my Portfolio Grader.

Therefore, GE stockholders can remain confident Culp’s leadership as General Electric steers toward a better financial future.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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