GE: The Turnaround Strengthens



GE’s stock rebounded Friday as the company delivered better than expected top and bottom line earnings results.

The company continues to make significant moves to cut costs, improve efficiency, and sell off “non-core” assets.

With so much negativity baked into the stock, GE could be near a long-term bottom.

Furthermore, the company’s businesses appear to be significantly undervalued right now.

Based on a valuation analysis, shares could rise by 40-50% over the next 12 months.

The Turnaround Story Strengthens

General Electric (GE) has essentially made the move from $30 to $13 in the last year, and many critics are still yelling “sell this stock.” However, with so much negativity in the air, could GE be at or near a bottom?

The company is executing its plan by selling off “non-core” assets, reforming its corporate culture, and is focusing on its primary business segments. Moreover, the stock still pays a dividend, and GE appears to be significantly undervalued at these levels. All this evidence suggests that GE is likely near a bottom and its share price should go significantly higher over the next year. Oh, and did I mention that earnings report? It was quite encouraging.

Q1 Earnings Overview And Key Highlights

  • Revenue rose to $28.66 billion in the first quarter, about a 4% YOY increase and about a 4% beat over consensus estimates that called for revenues of $27.45 billion for the quarter.
  • GE reported adjusted EPS of 16 cents a share, a 45% beat over the consensus analysts’ 11 cent estimates. However, EPS were down by about 24% from last year’s 21 cents adjusted income for the same quarter. It is important to note that the stock was about 100% higher back then.
  • Notable strong performers for the quarter were aviation, healthcare, renewables, and transportation. Relative weakness was observed in power, oil and gas, and capital.
  • CEO John Flannery said that they are seeing progress in GE’s performance and that industrial earnings free cash flow and margins all improved on a YOY basis at the company. Industrial structural costs were reduced by $805 million, and the company is on track to exceed its cost reduction goal of $2 billion in 2018.
  • GE recorded reserves of $1.5 billion for potential liabilities associated with its former WMC mortgage unit. This is higher than the $426 million-$1 billion estimates provided by Deutsche Bank and Bank of America. This suggests that GE may be ready and able to face its challenges head on, instead of just kicking the can down the road.

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