Despite better-than-expected first-quarter 2022 results, shares of General Electric (NYSE: GE) declined 10.3% on Tuesday to close at $80.59.
The multinational conglomerate provides technologies and solutions for the Aviation, Healthcare, Power, and Renewable Energy industries.
Perhaps the negative reaction of investors is due to the comments from the company’s executives that the challenges like ongoing supply-chain disruptions, inflationary pressures, and uncertainty regarding the Ukraine-Russia war are expected to persist and impact GE’s performance.
Results in Detail
Adjusted earnings of $0.24 per share grew 85% year-over-year and beat analysts’ expectations of $0.19 per share. Revenues remained stable year-over-year at $17 billion but surpassed consensus estimates of $16.9 billion.
Top-line growth can primarily be attributed to the rise witnessed in the Aviation segment’s revenues. Meanwhile, Commercial Services grew significantly on the back of higher shop visit volume.
The company received total orders of $18.9 billion during the quarter, up 11% from the last year’s quarter.
Outlook
The company is projecting its Aviation segment to benefit from strong demand on expectations of market recovery. Further, it said that the business remains on track to deliver revenue growth of more than 20%.
In Healthcare, GE sees the potential to deliver high-teens to 20% margins as supply-chain constraints ease.
The Chairman and CEO of GE, H. Lawrence Culp, Jr., said, “We’re holding the outlook range we shared in January, but as we continue to work through inflation and other evolving pressures, we’re currently trending toward the low end of the range. Importantly, we remain on track to launch three independent, investment-grade companies with leading positions in growing, critical sectors, well positioned to create long-term value.”
Stock Rating
Following the release, Bank of America Securities analyst Andrew Obin maintained a Buy rating on GE with a price target of $132, implying 63.8% upside potential from current levels.
Obin is of the opinion that GE’s Aviation and Power segments may support performance in 2022, however, renewables supply chain and structural margin levels at Healthcare may be headwinds.
Further, the analyst sees upside on 2022 FCF, with some support from supply chain improvement. He added that the pending spin-off of Healthcare will likely be a positive catalyst.
Overall, the Street is bullish on the stock and has a Strong Buy consensus rating based on nine Buys and three Holds. General Electric’s average price forecast of $115.33 implies upside potential of about 43.1% from current levels.
Hedge Funds Trading Activity
TipRanks’ Hedge Fund Trading Activity tool shows that confidence of hedge funds in General Electric is currently Very Positive, as the cumulative change in holdings across all 22 hedge funds that were active in the last quarter was an increase of 1.8 million shares.
Takeaway
Bullish analyst ratings, decent year-over-year performance and expectations of improvement in the Aviation segment are likely to make General Electric stock a promising investment option.
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