General Electric Hasn’t Shaken the Bulls Away Despite 3Q Flop
General Electric Company (NYSE:GE) failed to impress investors on Friday with an underwhelming third quarter that left CEO John Flannery acknowledging the current cash flow situation is lousy, absolutely “unacceptable,” and not to worry- “major changes” are about to be made, with no stone left unturned. Analysts across the Street are chiming in with loyal takes backing the industrial giant even on the heels of a rocky third quarter print. Perhaps for this reason, the stock did not take a steep plunge to the market floor.
Vertical Research analyst Robert Stallard, who pays particular attention to the aerospace sector, sees promise with GE’s Aviation business: “Although definitions differ from company to company, GE Aviation’s strong services result in 3Q, together with positive commentary on 4Q, bodes well for other aero engine suppliers that have yet to report. The most obvious of these is CFM partner, Safran, but also for aftermarket sales on more modern engines at Pratt & Whitney and Rolls-Royce. On the risk front, CFM clearly has a big LEAP ramp ahead in 4Q, which is something that Safran has been fully aware of for some time – but it still has to execute on this plan.”
Another perspective accepts that bears celebrated with Friday’s lackluster earnings showcase, as Melius Research analyst Scott Davis agrees bearish predictions were spot on- this time.
“Last, not sure there is much more the bears can fixate on from here. We got the EPS re-set that was expected and it was definitely 10-20 cents worse than most expected. So the bear call was accurate. But short of a recession or collapse in oil prices – hard to picture anything more. The dividend won’t be cut as GE will focus on growing FCF and earning into it – we think that’s the right answer as it forces the company to really drive FCF from here. They have no choice,” writes Davis, who likes GE’s drivers moving forward: “Restructuring stories normally work in industrials and laggards normally bounce back in upcycles. We’ve had the management shake-up that was necessary, we will likely see a bigger board shake-up, we have an activist to help drive the harder decisions, and we have portfolio announcements as catalysts as well.”
A staunch bull defending the industrial player, the analyst rates a Buy rating on GE stock with a $36 price target, which represents a just under 52% increase from where the stock is currently trading. (To watch Davis’ track record, click here)
Wall Street generally likes this giant as a stock pick, as TipRanks analytics exhibit GE as a Buy. Out of 12 analysts polled by TipRanks in the last 3 months, 5 are bullish on General Electric stock, 5 remain sidelined, and 2 are bearish on the stock. With a return potential of nearly 7%, the stock’s consensus target price stands at $25.45.
An Apple Story: Solid Pre-Orders, Production Cuts, and the China Factor
Rosenblatt analyst Jun Zhang is out surveying Apple Inc. (NASDAQ:AAPL) from the sidelines following buzz that Chinese e-commerce platform JD.com reported 1.1 million iPhone X early preorders before next week’s bona fide beginning of the newest iPhone model cycle. While these initial iPhone X preorders are encouraging, Zhang likewise dives into the grapevine’s fears of iPhone 8 production cuts, angling for “weak demand.”
Torn between exciting opportunities in 3D sensing and a smartphone market that does not bolster confidence in China for the tech titan, the analyst maintains a Neutral rating on AAPL stock with a price target of $150, which implies a 4% downside from current levels. (To watch Zhang’s track record, click here)
Zhang notes, “We believe this is a strong number and could end up totaling total 3-4 million units, higher than iPhone 8/8 Plus levels, when the official preorder starts next Friday in China. We do not believe preorder volume will reflect exact sales numbers, but is a significant measurement of consumer sentiment.”
With regard to iPhone 8 production cuts, the analyst explains, “We believe a subset of Chinese consumers are willing to pay a 20- 30% premium to have the iPhone X sooner, which could be a factor on why the early preorders are so strong. We believe some retailers are preordering/purchasing the iPhone X from Apple’s authorized retail channels, in order to resell the phone for profit in China.”
It is quite “likely” that Apple’s team will cut production to the tune of 30 to 35T on the iPhone 8 with slight production dial-backs on the iPhone 8 plus, predicts the analyst, who looks for production to take a downward trend from 12 million units per month to 7 to 8 million units per month for the next two months, ahead of any production cuts hitting, as the ramp-up is probabe for November and December.
Overall, the bigger scope is quite mixed for the titan as far as Zhang sees the situation, concluding: “With changing dynamics between the iPhone X and iPhone 8, we continue to highlight 3D sensing supply chain opportunities […] as key beneficiaries of the iPhone X, but we are cautious on the iPhone 8 supply chain due to potential order cuts and a potentially weak smartphone market in Q4 in China.”
Most of Wall Street is more enthusiastic on the tech leader than Zhang’s apprehensive stance, considering TipRanks analytics demonstrate AAPL as a Strong Buy. Based on 29 analysts polled by TipRanks in the last 3 months, 22 rate a Buy on Apple stock while 7 maintain a Hold. The 12-month average price target stands at $176.61, marking a 13% upside from where the stock is currently trading.