What to Watch When GE Reports Wednesday Morning

Chris Lange

General Electric Co. (NYSE: GE) is scheduled to release its third-quarter earnings report before the opening bell on Wednesday. The consensus estimates are calling for $0.11 in EPS and $22.93 billion in revenue. The same period from last year had $0.14 in EPS and $29.57 billion in revenue.

With its most recent earnings report in July, GE executives lowered the likely cash-burn expectations from the GE power business. Baker Hughes is already reverting to “a non-GE Company,” and GE’s Biopharma unit is in the middle of a review to be acquired by Danaher. All this is culminating under a report in recent months by Harry Markopolos who has questioned GE’s, accounting and opined that GE is short of working capital.

To make a further view of the company even more complicated, GE recently said that it plans to prepay roughly $4.5 billion of pension payments over the next year and will offer lump-sum buyouts to about 100,000 former employees. This move is targeting a reduction in GE’s net debt and is expected to lower GE’s underfunded pension deficit by as much as $8 billion.

Unfortunately for GE shareholders, the company faces potential costs of more than $1 billion of jet engines thanks to the grounding of Boeing’s 737 Max fleet.

CFRA still carries a Buy rating on GE shares. CFRA sees its ongoing sales down about 4% this year and sees any strength in oil and gas offset by weakness in the Power unit. The firm pointed out that its backlog rose 11% to $396.5 billion in the prior quarter but saw that total orders were down 4% on asset sales. While power orders were down big, they were shown to be up 2% on an organic basis, and aviation orders last quarter were down 10% while health care orders were down 2%. Renewable revenues were up 35% and oil and gas orders rose 11%. With organic revenues up an expected 1% in 2020, CFRA sees EBITDA margin sagging on its slowdown in Power and as it continues to transition away from finance. CFRA sees GE’s EBITDA margin as 9.9% in 2019 and 12.4% in 2020 with an expectation that GE will take more restructuring charges over out as far as 20201.

Credit Suisse, which has a Neutral rating, is focused on the long-term care (LTC) review with a proprietary insurance model while also keying in with the firm’s teams that cover aerospace and defense and also alternative energy. Its own forecast is for minimal LTC funding requirements, versus about $4 billion as investor expectations and about $18 billion as referenced in a GE short-seller report. A note from Credit Suisse thinks a better understanding of the LTC liabilities could set a floor on its shares and provide some uplift on the quarter, but the firm thinks visibility into improving absolute free cash flow generation will be required to drive GE’s shares above its own expectations.

Overall, GE has outperformed the broad markets with the stock up about 25% year to date. However, in the past 52 weeks, the stock is actually down 20%.

Here’s what a few other analysts had to say about GE ahead of the report:

  • RBC has a Buy rating with a $13 price target.
  • JPMorgan has a Sell rating.
  • Barclays has a Buy rating with a $12 price target.
  • Credit Suisse has a Hold rating with an $11 price target.
  • Morgan Stanley has an Equal Weight rating with a $10 price target.
  • Citigroup has a Buy rating with a $14 price target.
  • William Blair has a Buy rating.

Shares of GE were last seen at $9.02, with a 52-week range of $6.40 to $11.30. The consensus analyst price target is $10.11.