General Electric (GE): Skeptics Bet Against a Rebound


Good news is coming more often for General Electric (GE).

The industrial giant, coming off a miserable 2018, is seeing increased optimism with its stock as it continues to build on its so-far successful restructuring efforts. Just recently, GE earned a big win from the Paris Air Show in the form of bookings of its engines. It is expected that the company generated about $35 billion of bookings, $4 billion more than last year. Its biggest success happens to be the one that has been grounded for much of the year — the LEAP engine. The engine behind the Boeing 737 Max was a best-seller in Paris, with Indian low-cost airline IndiGo signing on to a $20 billion order to put these engines on their Airbus A320s and A321s.

However, the good news hasn’t changed the mind of Stephen Tusa of JP Morgan, who maintained his Underweight rating and $5.00 price target on GE stock. (To watch Tusa’s track record, click here)

While many are excited about GE Aviation after Paris, Tusa is not moved. In fact, the analyst says, “information gleaned…supports [his] view of fundamental value at GE Aviation, which is well below the standing Bull case.” But Aviation’s performance isn’t really Tusa’s biggest concern — what the analyst is looking at closely is the way GE reports figures.

The company came under fire recently for conveying information in a confusing sense, which made its performance look better than it actually was. Tusa sees similar games happening here with Aviation. He says he sees “a pattern of numbers that are adjusted several different ways, distorting what we believe this company would look like on a true fully loaded public company basis.”

For example, Tusa says the way GE is reporting is “far from straight forward” and provides “less disclosure of the normal operating metrics than given in the past.” The analyst says that GE is distorting the facts by including “FCF disclosure that…could be perceived to support an optimistic narrative.”

All in all, Street-wide caution circles the volatile industrial player, as TipRanks analytics model GE as a Hold. This boils down to 3 bullish analysts, 4 neutral, and 2 bearish in the last 3 months. Is GE stock an undervalued or overvalued stock? Right now, analyst expectations align with levels where the shares last closed, with the 12-month average price target standing at $10.50. (See GE’s price targets and analyst ratings on TipRanks)

 

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