Ahead of the Tape: GE's Stock Upswing Needs More Power -- WSJ
January 20 2017 - 3:03AM
Dow Jones News
By Charley Grant
Investors have applauded the corporate makeover at General
Electric Co. Their optimism will be put to the test Friday when the
industrial bellwether reports fourth-quarter results.
Analysts surveyed by FactSet expect GE to report revenue of
$33.9 billion and adjusted earnings per share of 46 cents. A year
ago, GE reported fourth-quarter sales of $33.9 billion and adjusted
earnings of 52 cents a share.
GE has been divesting its vast GE Capital business to focus on a
pure industrial portfolio since April 2015. That decision has been
a major success. The Federal Reserve no longer designates GE as a
"systemically important financial institution" with the attendant
restrictions. Investors have sent the stock 25% higher since GE
announced its transformation, in part because industrial companies
command higher market valuations than financial ones.
The stock has rallied despite GE's revenue falling short of
estimates in four of the past six quarters. Investors have been
willing to overlook the misses, in part because they have been easy
to explain: Thanks to a lengthy bear market, the oil-and-gas
business has been a prime culprit for the shortfalls.
In the third quarter, revenue in the oil-and-gas business fell
25% from a year earlier. On a companywide basis, revenue growth was
flat through the third quarter from a year earlier after excluding
acquisitions, dispositions and foreign currency movements. But
sales would have grown 4% without oil and gas.
To its credit, GE has turned the slowdown into an investing
opportunity. It agreed this fall to combine its oil-and-gas segment
with Baker Hughes into a new publicly traded entity. GE will
control the majority of the combined company once the deal closes.
Investors should be well positioned to benefit whenever the slump
finally comes to an end.
But for the short term, oil and gas remain a drag. Analysts
expect revenue of $3.6 billion in the quarter, down 18% from a year
ago. Other worries include plodding economic growth and a
persistently strong dollar.
The good news: While the business makeover has triggered a
valuation boost, the company isn't too richly priced. Its
debt-adjusted market value is about 11 times this year's projected
earnings before interest, taxes, depreciation and amortization,
according to analysts at Barclays. GE's peer group trades at about
12 times that measure.
While Friday's results may not give GE's rally a second wind,
shareholders would do well to stick around for a while anyway.
(END) Dow Jones Newswires
January 20, 2017 02:48 ET (07:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
GE Aerospace (NYSE:GE)
Historical Stock Chart
From Mar 2024 to Apr 2024
GE Aerospace (NYSE:GE)
Historical Stock Chart
From Apr 2023 to Apr 2024