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General Electric Pops 9% As Quarterly Profit Takes Investors By Surprise

support@smarteranalyst.com (Ben Mahaney)
·2 min read

General Electric surprised investors with a quarterly profit as power and renewable energy sales rose, sending its shares up almost 9%.

GE (GE) earned an adjusted 6 cents per share in the third quarter compared to the same period last year, while analysts had expected the industrial conglomerate to incur a loss of 4 cents per share. Revenue during the quarter dropped 17% to $19.42 billion year-on-year, exceeding the Street consensus of $18.73 billion. Sales for both GE’s power and its renewable energy businesses increased 3% to $4 billion and 2% to $4.5 billion, respectively. Meanwhile, revenue at GE’s aviation unit plunged 39% to $4.9 billion.

“We are improving our profit and cash performance with organic margin expansion in every segment except Aviation, though orders more broadly remain under pressure," said GE CEO Lawrence Culp. "We are managing through a still-difficult environment with better operational execution across our businesses, and we are on track with our cost and cash actions.”

In the third quarter, GE reported free cash flow of $514 million from industrial operations versus an outflow of $2.1 billion in the previous quarter. Analysts had expected an outflow of $876 million.

Looking ahead, GE’s Culp expects industrial free cash flow to be at least $2.5 billion in the fourth quarter and positive in 2021.

In a first comment, Cowen & Co analyst Gautam Khanna said that Q3 EPS/FCF were above “downtrodden” expectations.

“The stock may bounce on improved 2nd derivatives,” Khanna wrote in a note to investors, adding that he continues to favor other large industrial conglomerates, including Emerson Electric, Honeywell and TransDigm Group over GE.

Hence the analyst maintained a Hold rating on GE with a $7 price target. (See GE’s stock analysis on TipRanks).

GE shares, which have somewhat recovered and gained 24% over the past month, are still down 31% since the start of the year. That’s with a Moderate Buy analyst consensus which shows 6 Buy ratings and 6 Hold ratings. Meanwhile, the $8.20 average price target indicates investors could be reaping a 7% gain in the shares in the next 12 months.

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