Industrial and electronics heavyweight General Electric (GE) offered up its earnings report recently, and the market viewed it positively. The report offered some exciting gains alongside some less pleasant setbacks. Though the earnings report was a mixed bag, there’s reason enough in it to like GE once again. I stand moderately bullish as a result.
GE has demonstrated incredible stability in a year that was marked by pretty much anything but. The company led off the year with a slow and steady climb, going from the mid-$80 range to the $100 range in a little over two months. Once it got to the $100 range, it stayed there to this very day.
GE’s closing prices for the last six months have stayed within a $20 range, with a closing high of $114.62 on May 27 to a closing low of $95.93 on July 19. (See today’s best-performing stocks on TipRanks)
The latest news gave GE a substantial uptick. The biggest contributor to this was GE’s earnings report, which boasted a bit of a mix in results. GE missed on revenues, bringing in $18.4 billion against analysts’ estimates calling for $19.251 billion. However, GE beat on earnings, bringing in $0.57 per share against a projected $0.43.
GE also beat in two other ways. The company improved its full-year forecast, going from a previous range of $1.20 to $2.00 to the new range of $1.80 to $2.10 per share. Recovery in its jet engine business paved the way for those gains. It also narrowed its free cash flow forecasts from the original $3.5-5 billion to $3.75-4.75 billion.
Stability in an Unstable Market
GE’s incredible stability is something of an anomaly in just about any market. This one, in particular, is no exception. In a year marked by wild swings in the market, seeing a company hold an almost straight line—and even the outlier numbers are brief hiccups in one direction or another—is almost a miracle.
GE will have some real challenges ahead of it. The company has already noted that it, like most others out there, will be hit by supply chain issues.
Additionally, the company is concerned about certain government measures, including production tax credits as part of the latest infrastructure bill. That bill has already taken quite a few lumps. It may look nothing like the original projections when it finally comes up for a vote, if it ever actually comes up for a vote.
One further note of concern comes from options traders. Reports note that GE currently has a 10-day put/call volume ratio of 0.91 on it. That’s actually higher than 96% of the other recorded ratios.
However, when I see a value that stable, I immediately look to its dividend history. A value that stable screams “income stock” like a burning man screams for water. What I found, though, was nothing but disappointing.
GE’s quarterly dividend was pretty stable for years, until 2017 hit. Then, in just three months, the company slashed the dividend in half. That was bad enough until about a year later when it slashed most of the other half out of it.
GE dropped the dividend to a penny a quarter. That was before COVID-19 even hit. The latest dividend got a bump up to $0.08, but that’s still a far cry from what it was.
Wall Street’s Take
Wall Street’s consensus rating calls GE a Moderate Buy. Based on the projections of 10 analysts that have 12-month price targets on the company issued in the last three months, seven consider it a Buy. The remaining three call it a Hold.
GE spent most of the last 12 months as a Moderate Buy, except for one brief shift up to a Strong Buy, back in early August. The average GE price target of $121.20 implies 15.9% upside potential.
Concluding Views
GE has impressive stability and even more impressive product diversification. GE’s products are in homes, in factories, and just about everywhere in between. That gives it incredible staying power in even the worst economic conditions.
However, there are also substantial problems here. When a company is hoping that certain tax credits make it up for a vote, that’s a worrying sign.
I remain moderately bullish on GE. However, I am hoping that this company can ultimately become more than the sum of its parts. If that ever becomes the case, given the sheer number of parts it has, GE may prove unstoppable.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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