February 1, 2019
GE Stock Keeps Rising as Analysts Weigh In on Outlook
By: Teresa Rivas
General Electric stock (ticker: GE) rose again, a day after the shares rallied in response to its fourth-quarter earnings report. It’s no surprise that analysts weighing in on the quarter are divided about the results and the shares’ move.
The back story: While 2018 was another brutally painful year for GE, 2019 has been much kinder to the industrial firm. The shares are up 36.5% since the start of the year. It’s not that all of GE’s problems have miraculously dissipated—there are still plenty of notes of caution about GE and the wider industrial sector. However, after GE’s long slide, some analysts argue that we’ve gotten to the point where the worst is over—and maybe a buying opportunity.
The plot twist: GE jumped after it reported fourth-quarter earnings on Thursday. The company said it earned 17 cents per share on revenue of $33.28 billion. The consensus among analysts was for EPS of 22 cents on revenue of $32.16 billion. GE didn’t provide guidance.
Although there has been some enthusiasm building lately for GE, expectations are still quite low in general for the firm after recent years. So while its bottom line missed expectations, investors were more inclined to look on the bright side, helping the shares climb above the $10 mark.
Moving forward. GE is a stock that inspires strong opinions, so it’s no surprise that analysts are divided about the quarter.
Let’s start with the good news. UBS ’s Peter Lennox-King reiterated a Buy rating and $12 price target on the shares, writing that “clear priorities, more Healthcare proceeds, lack of ‘big uglies’ outweigh a limited 2019” outlook. He liked that CEO Larry Culp laid out plans for more divestitures, leverage reduction, and increased customer focus, and said “it’s becoming more evident to the market that GE has the necessary tools at its disposal to reduce leverage to more appropriate levels.”
By contrast, JPMorgan ’s Stephen Tusa reiterated a Neutral rating and $6 price target, writing that he is baffled by the stock’s positive reaction to the quarter. He argues that one of the critical points for him is the “ongoing lack of visibility on the simple math that shows a negative run rate on enterprise free cash flow fully diluted for portfolio moves, from which, even assuming recovery in Power, we believe one has to make highly optimistic assumptions to get back to a run rate that supports anything near $10.” Tusa is a longtime GE bear who upgraded the stock to Neutral at the end of 2018 but has continued to sound notes of caution. It’s not surprising that he’s not yet willing to sound a more optimistic note.
Tusa isn’t the only one who thinks the shares may have gotten ahead of themselves. Vertical Research Partners’ Jeff Sprague downgraded GE to Hold from Buy on Friday, following the report and subsequent stock move. The cut comes just over a month after Sprague upgraded GE to Buy in late December, his first bullish call on the stock in a decade.
A GE spokesperson pointed Barron’s to Culp’s earnings commentary, highlighting his statement that GE has “ identified clear opportunities to improve our performance, and we are working to address them at root cause.”
GE was up 1.6% to $10.33 in midday trading. Barron’s has its own suggestions about how GE can keep the rally going.
VRP Materials Wine Tasting Dinner
November 13, 2019
6:00PM - 10:00PM
New York, NY
The Lotos Club - New York City