Stock of the day 16/04/2015 – General Electric

Retrenchment is the name of the game for General Electric, with the news of some serious streamlining dominating discussion of the company ahead of its Q1 2015 earnings release on Thursday.

The markets weren’t particularly kind to General Electric in 2014; the company started the year at $27.91, and following a choppy 12 months that saw the recovery of big losses in October dissipate by the end of the year, closed 2014 a couple of dollars down at $25.28. After quickly hitting a low of $23.45 in the middle of January, it looked like GE was going to continue to suffer as 2015 started; however, the news of some aggressive movements by the company inspired confidence in investors, sending it to $28.53 on April 10th after near 10% gains in a single day. Things have fallen off slightly since then, with GE now trading at $27.44; still, however, its best price since the very start of 2014.


(Source: IT-Finance.com 16/04/2015)

The winds of change at GE were first sensed as it was announced that the company was selling its property portfolio to Wells Fargo and Blackstone for around $23 billion. However, this move was just the tip of the iceberg.

On the 10th April General Electric announced it was going to sell off most of its financial arm GE Capital, leaving just those aspects related to the company’s industrial businesses, a move that sparked the aforementioned 10% growth on the markets. GE is attempting to purge itself of its shaky financial services and re-establish itself as an industrial giant for a fairly simple reason: financial companies don’t carry the same relative valuation on the markets as they used to, with industry eclipsing the banking sector in this area. It therefore makes sense that a) GE would choose to try and focus on the stronger area and b) investors would be so pleased by this choice.

In terms of its first quarter results, things are looking slightly less perky for GE. The company’s expected earnings per share is $0.29, roughly a 10% decline from this time last year. Similarly, revenue is forecast to stagnate at $34.23 billion, a near-imperceptible increase from 2014’s first quarter figure of $34.18 billion. And that is just the best case scenario; the worst case scenario has been a predicted £2 billion decline.

There are also those factors that multinationals are still trying to get used to, namely cheap oil and a stronger dollar. Netflix saw its earnings per share almost half from expectations due to forex issues, so GE could see the same problems plague its already low estimates. However, analysts have been buoyed by General Electric’s recent moves in the right direction, giving the stock a consensus rating of ‘buy’ and an average target price of $29.17.