GE Shares Shine Too Brightly -- Ahead of the Tape
July 21 2016 - 3:58PM
Dow Jones News
By Steven Russolillo
General Electric Co. may no longer be too big to fail, but its
shares might be too rich to keep rallying.
GE's stock has jumped 9% since late last month when the company
was stripped of its designation as a "systemically important"
financial institution. That rally seems justified, particularly
since the maker of aircraft engines, power generators, and medical
devices is no longer susceptible to tighter rules and supervision
from the Federal Reserve.
And while GE has shed much of its finance business and
strategically shifted back to its industrial roots, it is the
conglomerate's additional financial flexibility that has investors
jazzed.
Upon losing the "SIFI" label, GE has discussed borrowing as much
as $20 billion for additional stock buybacks. That has already
prompted Moody's Investors Service to warn that GE's credit rating
could take a hit. And while more buybacks and dividends could
provide a floor for shares, they alone don't necessarily translate
into an even higher stock price for GE.
Friday's earnings report will shine a brighter light on GE's
core business. Analysts polled by FactSet estimate GE earned 46
cents a share in the second quarter. Revenue is expected to have
increased by 8% to $31.8 billion. On a full-year basis, though,
earnings are anticipated to be $1.50 a share. By comparison, this
consensus forecast was $1.96 two years ago.
In its most recent quarterly report, GE's industrial business's
operating profit fell 7% from a year earlier to $3.3 billion. GE
chief Jeffrey Immelt has said that industrial orders should pick up
in the second half of the year, but that was before Brexit rattled
financial markets and potentially disrupted the European
economy.
GE, which has rallied more than 20% over the past 12 months and
trades at an eight-year high, has finally ascended above the low
multiple assigned to financial companies. Fetching 20 times
projected earnings over the next 12 months, GE's shares recently
have been valued at their highest since late 2004. The multiple is
richer than that of rival Honeywell Inc. and the broader S&P
500 industrials sector, but roughly in line with Caterpillar Inc.
and Deere & Co.
This energetic rally might be low on power.
(END) Dow Jones Newswires
July 21, 2016 15:43 ET (19:43 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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