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Shares of General Electric GE surged nearly 2% in early morning trading Thursday, just one day before the embattled conglomerate is scheduled to release its latest quarterly earnings report. Investors will want to pay close attention to GE’s results on Friday morning as the iconic brand looks to rebuild confidence from the market.
Earnings growth is expected to be strong throughout the Q1 report season, but the tone surrounding General Electric is concern—not optimism. Mounting debt issues, sluggish performance in core brands, and regulatory headwinds have created a massive headache for the Boston-based company over the past year or so.
GE shares have already dropped another 20% since the start of 2018, and investors will be looking for any sort of rebound catalyst that they can find. But will there be something positive to discover when GE reports tomorrow? Let’s take a closer look.
Latest Outlook and Valuation
Based on our latest Zacks Consensus Estimates, we expect General Electric to report earnings of 11 cents per share and revenue of $27.9 billion. This top-line result would represent a modest year-over-year improvement of 0.8%, but our bottom-line estimate is calling for profits to slump about 47.6%. Investors should also recognize that this EPS estimate has trended down since the start of the quarter.
Heading into today, GE was trading with a Forward P/E of 14.0, which is a noticeable discount to its industry’s average of 17.7x. Within the past year, the stock has traded as high as 14.1x forward 12-month earnings and as low as 13.2x. Its median earnings multiple over that time is 13.5x. Investors will note that there has not been much movement in this key valuation metric for GE over this period.
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that General Electric surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
General Electric is currently holding a Zacks Rank #5 (Strong Sell) and an Earnings ESP of +5.3%. This mean that the most recent analyst estimates have been higher than the consensus. However, due to the stock’s weak Zacks Rank, our model is not conclusively calling for a beat.
Another important thing to consider ahead of General Electric’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report.GE has had an abysmal streak in this regard, moving lower within this window in nine consecutive quarters.
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