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Is General Electric’s (GE) 2019 Stock Surge Worth The Buy?


What to do about General Electric (GE)?

That’s the million dollar question as the conglomerate continues to go through a restructuring process that investors hope will turn the stock around for good. So far, it seems to be working; after losing about 50% of its value in 2018, the stock is up more than 25% in 2019. Investors sentiment is clearly higher than it was even a few months ago, as new CEO Larry Culp continues GE’s divestment efforts, including that of its Healthcare unit which is expected to IPO later this year. Investors are happy that Culp is accelerating GE’s divestment plans, which will help the company focus on core products and services.

Nevertheless, Deutsche Bank analyst Nicole DeBlase maintains her Hold rating, while raising her price target to $8.00 (from $7.00), which implies about 25% downside from current levels. (To watch the analyst’s track record, click here)

DeBlase is surprised that GE’s stock has performed so well over the past month. She says she is “left scratching [he head] a bit at the magnitude of GE’s positive share price reaction to 4Q results (+12% vs. +1% for the broader MI/EE group).” She points out that “management was unwilling to provide critical components of the 2019e framework, most notably directionality on Power profit,” which creates an unclear picture of GE in the short term.

The analyst says she “2019e EPS forecast steps up 3% to $0.78” as she takes into account less pessimistic Power margin assumptions. She says, “after excluding $900m of ‘one-time’ charges in Power, segment profit was slightly better than breakeven despite a 13% organic revenue decline.” The biggest change in her model was “to assume the segment is able to deliver modestly positive income in 2019e, as organic revenue declines are offset by cost-cutting actions and (hopefully) fewer charges vs. 2018.”

DeBlase increases her price target to $8 “after moving…EPS forecasts higher.” The analyst says she expects the stock to give back some of its 2019 gains, as large positive movements in the stock has largely been unjustified. While she maintains her Hold rating, she sees upside in “positive trends in the company’s Power business, upside to debt reduction targets, improved margin dynamics in the company’s renewable energy business, general economic strength.” But risks include “execution mishaps with regard to the company’s strategic review, exogenous factors (economic downturn, geopolitical instability).”

The investor community is mixed on General Electric. TipRanks analysis of 17 analyst ratings shows a Moderate Buy consensus, but an even split (8 analysts each) recommending Buy or Hold, while one analyst recommends Sell. The $10.29 average price target further shows the mixed thoughts on the company, as it represents a less-than 1% drop from its current value. (See GE’s price targets and analyst ratings on TipRanks)

 

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