Sometimes, even a solid earnings report isn’t enough to keep a company going, as energy equipment maker General Electric (GE) revealed. The company posted an earnings report that was by most standards a winner. Yet, it lost over 10% in trading on Tuesday.
I’m holding a Neutral position on GE. While it’s fantastically diversified, there are plenty of headwinds fighting GE going forward that may keep this company from advancing very far.
The last 12 months for GE have shown what this company is actively fighting through. Share prices spiked in May and November 2021, as well as January, February, and March 2022. However, those spikes never lasted long, and each was followed by a reversal that sent prices lower.
The latest news should have turned things around, yet seems to have made matters much worse. GE posted its earnings report, turning in beats for both earnings and revenue projections. Earnings came in at $0.24 per share against a Street consensus that called for $0.19.
Revenue was a much closer matter, however; Group revenues came in at $17 billion against projections calling for $16.9 billion. Organic revenues, however, proved a miss, as the organic figure of $16.43 billion faltered against projections calling for an extra $490 million.
Wall Street’s Take
Turning to Wall Street, GE has a Strong Buy consensus rating. That’s based on nine Buys and two Holds assigned in the past three months. The average GE price target of $118.27 implies 46.8% upside potential.
Analyst price targets range from a low of $98 per share to a high of $132 per share.
Investor Sentiment More Mixed than Earnings
A closer look at investor sentiment, meanwhile, makes it clear that GE’s fate is not especially clear.
The TipRanks 13-F Tracker, for example, reveals that hedge funds are increasing their stake in GE. Between September and December 2021, hedge funds added around 1.8 million new shares.
Insider trading at GE is a very puzzling mix. In the last three months, GE insiders sold a combined total of $2 million in shares. Despite this, however, buying has led selling over the last 12 months in terms of overall transactions.
As for retail investors who hold portfolios on TipRanks, that’s also a mixed bag. While the number of portfolios with GE in them was up 5.3% for the last 30 days, it’s down 0.8% in the last seven days.
Finally, GE’s dividend history behaves about as well as an income investor could hope for. While GE’s dividend remained at a static $0.07 per share from June 2019 to June 2021, a raise kicked in in September 2021. Paying dividends during the pandemic years was a tall order for many companies. GE actually pulling it off is a great sign.
A Big Blank Monolith in a Fog Bank
Here’s the big problem about projecting an opinion for GE. Like the song said: for every to, there is a fro. For every reason to be encouraged about GE’s operations, there’s a reason to be concerned about it.
A great example comes from GE CEO Larry Culp, who noted that the company is holding on to its full-year forecasts. Good news, but it also expects to hit the lower end of said forecasts rather than the higher end. Yet, even as Culp said this, he immediately couched the remark, noting that GE is “…operating in a challenging macro environment.”
Give GE credit. It’s looking to address the issues inherent in the field as rapidly as is possible. The company has raised prices on its products to address inflationary concerns.
It’s also put the price escalation clauses in current service contracts into play as well. It’s working to find alternative sources of parts to deal with supply chain issues, and it wants to step up its productivity to cut costs.
A bigger problem for investors is that GE is still in the midst of splitting off its businesses. The current plan to break GE down into three smaller operations is, at last report, still going on. The company has gone so far as to authorize a buyback plan a few weeks back, backed by $3 billion.
Some concerns remain, however, about the company’s ability to meet earnings for the full-year 2022, as well as potential delays in its move into renewable energy.
Concluding Views
Again, where does this leave GE investors? Not in an especially good place. There are plenty of reasons to buy in on GE: the move into multiple companies, the fact that it’s likely to hit its earnings projections, and the upcoming buyback that will make shares scarcer, and thus more valuable.
Throw in the fact that GE is currently trading nearly 20% below its lowest price target and that is certainly encouraging. Its regular dividend doesn’t hurt either.
However, GE’s rapid downward slump, the “challenging macro environment,” and some of the investor sentiment don’t add up to a winning proposition either.
Therefore, I stay neutral. There exists a nearly perfect balance of good news and bad news about GE.
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