GE Drops 6% on Revenue Miss & Muted FY22 Outlook

Shares of General Electric (NYSE: GE) were down 6% on January 25 to close at $91.11 after the multinational conglomerate reported mixed Q4 results and provided FY2022 guidance much lower than analyst expectations.

Earnings topped estimates but revenues disappointed due to ongoing industry-wide supply-chain disruptions, inflationary pressures, and uncertainty regarding the U.S. wind production tax credit.

Q4 Numbers

Q4 adjusted earnings of $0.92 per share grew 59% year-over-year and beat analyst expectations of $0.87 per share. The company reported earnings of $0.58 per share in the prior-year period.

However, revenues declined 3% year-over-year to $20.3 billion and lagged consensus estimates of $21.48 billion.

Transformation Update

GE, an S&P 500 company, announced its plans to create three independent companies focused on the aviation, healthcare, and energy growth sectors.

With respect to financial statement reporting, GE is transitioning from three-column to one-column financial statement reporting.

FY2022 Outlook

Looking ahead, management issued financial guidance for FY2022. The company forecasts adjusted earnings in the range of $2.80 to $3.50 per share, much lower than the consensus estimate of $4.01 per share.

The company said that it expects to return to revenue growth in FY2022. Organic revenues are forecast to grow in the high-single-digit range, while free cash flow is projected to be in the range of $5.5 billion to $6.5 billion.

CEO Comments

Looking into FY2022, GE CEO H. Lawrence Culp, Jr. commented, “We’re seeing real momentum and opportunities for sustainable profitable growth from near-term improvements in GE’s businesses, especially as Aviation recovers and our end markets strengthen.”

He further added, “As we lay the groundwork to create three independent companies focused on critical global needs, we’re encouraged by the support from our customers, employees, and investors. We’re confident that our businesses will deliver long-term growth and value.”

Wall Street’s Take

Following the Q4 results, Goldman Sachs analyst Joe Ritchie reiterated a Buy rating on GE with a price target of $131 (43.8% upside potential).

Ritchie stated that FY2022 guidance was consistent with his expectations and added, “We expect the FCF walk and components of the 2022 EPS guide to be the focus on the call. We expect GE’s shares to outperform on this result.”

The rest of the Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 10 Buys and 5 Holds. The average General Electric stock forecast of $116.80 implies 28.2% upside potential to current levels.

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