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Bear of the Day: General Electric (GE)

Neena Mishra

General Electric (GE) is one of the largest and the most diversified technology and financial services companies in the world. Its products and services range from aircraft engines, power generation, water processing, and security technology to medical imaging, business and consumer financing, and industrial products.

Lackluster Results

The company reported adjusted earnings of 29 cents per share, missing the Zacks Consensus Estimate of 50 cents by 41%. Revenues were however ahead of our estimate.

The company also significantly lowered its guidance for FY2017.  It currently anticipates operating earnings within $1.05–$1.10 per share, significantly down from earlier guidance of $1.60-$1.70.

For 2018, the company now expects adjusted earnings of $1 to $1.07 per share.

Falling Estimates

Analysts have lowered their estimates for the company after weak earnings and updated guidance. Zacks Consensus Estimates for the current and the next fiscal year have plunged to $1.06 per share and $1.04 per share from $1.56 and $1.66 respectively, 60 days back.

Reorganization: Dividend Cut and Lay-offs

The company deferred its dividend decision for 2H, while announcing earnings results, leading many analysts to believe that a dividend cut was coming soon considering company’s cash flow position.

Last month, the company slashed its dividend by 50% “to align to GE’s cash flow generation.”

Last week, GE announced 12,000 job cuts in its power division, citing numerous problems such as overcapacity, lower utilization, and overall growth in renewables. The company expects these challenges to continue. These lay-offs will happen over the next 18 months.

These are a part of broader restructuring plans under the new CEO. It remains to be seen whether these plans would put the company back on growth path.

The Bottom Line

GE shares are down 44% year-to-date while many other industrial stocks have surged this year. Recently Moody cut the company’s long-term credit rating, due to “severe deterioration” in company’s segment financial performance.

The stock has fallen to a Zacks Rank #5 (Strong Sell) after results as analysts continue to slash their estimates. Investors should avoid the stock for the time being.

 

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