The industrial technology company General Electric (GE) is scheduled to report second-quarter 2021 earnings on Jul 27, before the market opens.
Over the past year, shares of the conglomerate have jumped 89.4%, and it is now trading at over $12. Solid Q2 results might propel the stock price upward, so let’s take a closer look at what analysts on the Street are expecting.
Q2 Expectations
For Q2, the Street expects General Electric to report adjusted EPS of $0.03 and revenues of $18.14 billion.
Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $0.06 per share. (See GE stock charts on TipRanks)
General Electric’s Prior Quarter Snapshot
In the last-reported first quarter, General Electric reported mixed results, with its top-line numbers missing the Street’s estimates, while the bottom line figures surpassed the same.
The revenues came in at $17.1 billion, which decreased 12.2% year-over-year and missed the Street’s estimates of $17.52 billion.
Meanwhile, adjusted earnings of $0.03 per share surpassed the Street’s estimates of $0.01.
Factors to Note about General Electric
General Electric generates the majority of its revenues from the Industrial segment. The Industrial segment comprises four core businesses: Power, Aviation, Renewable Energy, and Healthcare.
Coming to the Power segment, the progress in Power Portfolio and Gas Power services are likely to have favored its performance. As customers switch from coal to gas, Gas Power is expected to benefit from decarbonization at scale. Furthermore, the company’s efforts to modernize the Power Grid with digital and automation solutions are expected to have paid off during the quarter.
For the Renewable Energy segment, the company has won a few contracts which are expected to have expanded revenues in this business. Recently, it won a contract to supply more than 530 turbines to North Central Wind Energy Facilities in Oklahoma. Furthermore, strengthening business on an international basis, along with healthy offshore wind markets, is likely to have helped performance in the upcoming quarter. However, weak onshore wind markets in the United States are expected to have impacted revenues locally, to some extent.
In the Aviation segment, the company secured LEAP engine and service agreements from Southwest Airlines and Scandinavian Airlines to power 100 MAX and 35 A320neo aircraft. The agreements are expected to have increased revenues in the business. However, persistent market-related challenges due to the pandemic are likely to have played spoilsport in the quarter under review.
Coming to the Healthcare segment, the company has been making efforts to enhance its healthcare portfolio. Recently, the company launched two new ultrasound products – the Vscan and Venue – to help medical professionals with cardiac imaging. These innovative solutions are expected to have helped the company to expand its share and customer base in the healthcare market. Additionally, an increase in the global volume of elective surgeries and a strong demand for non-pandemic goods are believed to have assisted this segment’s performance.
Notably, the investors should look into the company’s efforts to deleverage the balance sheet in the quarters ahead. GE has benefited from divestitures, which have served to strengthen the company’s balance sheet. In order to simplify operations and pay down some of its debt, it has sold a number of assets, including its locomotives and light bulb businesses.
Furthermore, the company has set some strong cash flow targets for 2021 and beyond, indicating healthy cash generation in the future. For the upcoming quarter, the company expects cash flow generation to improve on a year-over-year basis.
In the last earnings call, GE CEO H. Lawrence Culp, Jr., sounded positive about the performance of GE Capital Aviation Services (GECAS) in the near future. He said, “Our recent GECAS transaction serves as an important catalyst in our transformation to a more focused, simpler, and stronger industrial company.
He added, “At the same time, our businesses are building momentum by accelerating our lean and decentralization efforts. We are shifting more toward offense and capturing opportunities in the energy transition, precision health, and future of flight.”
Analyst Recommendations on General Electric
Ahead of the second-quarter earnings announcement, UBS analyst Markus Mittermaier reiterated a Buy rating on the stock with a price target of $17.00. This implies 33.8% upside potential to current levels.
Still, the analyst stated the risk of the company’s aviation margins decreasing to 9.6% in the upcoming quarter.
Another analyst, Nicole DeBlase of Deutsche Bank, reiterated a Hold rating but decreased the price target to $14.00 from $15.00. This implies 10.2% upside potential to current levels.
The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 8 Buys and 4 Holds. The average GE price target of $14.10 implies 10.9% upside potential from the current levels.
GE scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
