On 29 July, General Election [GE] will publish its latest earnings release — and GE’s share price shouldn’t expect good news.
Zacks predicts a loss of $0.14 per share, which would represent a year-over-year decline of 182.35%. The firm’s most recent consensus estimate is calling for quarterly revenue of $17.01bn, down 41% from the same period in 2019. Not good reading for those trading or invested in GE’s share price.
As of 28 July, GE’s share price was at $6.89, very much towards the lower end of its 52-week range of $5.48–$13.26.
The company's share price has fallen by more than 38% in the first half of this year and is now down by almost 80% from its July 2016 post-global financial crisis high.
Since 24 June, GE’s share price has gained 5.7%, well behind the conglomerates sector's gain of 7.59% and the S&P 500's gain of 5.53% over the same period.
GE’s debt reduction plan
GE has been making efforts to offload underperforming parts of its business with some success. In February 2019, Danaher [DHR] acquired GE’s biopharma business for $21.4bn, and earlier this year the company sold its lighting unit to Savant Systems, further reducing its industrial debt.
According to Zacks, GE is poised to gain from its portfolio restructuring program, digital business, and debt reduction efforts in the near-term. The company has set a target of reaching 2.5x industrial net debt to EBITDA this year, down from 4.2x last year and almost half the level recorded in 2018.
According to Benzinga, GE’s debt ratio as per its most recent financial statement was 0.32, with $66.39 billion in long-term debt and $18.77 billion in current debt.
GE's long-term debt according to Benzinga
However, the company’s power business has been ravaged, its wind turbine production is taking time to crack the offshore market and, of course, its aviation business has been impacted by recent travel restrictions and problems with Boeing [BA] aircraft.
There was more bad news for the company with reports that the UK tax authority had accused GE of misleading the authority in relation to a 2005 transaction with an Australian subsidiary. It was suggested that a finding against the company could cost it as much as $1 billion.
2020: A no-progress year for GE?
In its most recent financial statement, GE posted $0.05 earnings per share, missing the consensus figure of $0.06. Wall Street market experts anticipate that the next fiscal year will bring earnings of $0 per share.
On 10 June, GE provided an update on its free cash flow expectations, saying it expects to generate high single-digit free cash flow margins by 2021. It believes that an increase in aircraft departures in China and growing freight volumes are healthy signs for its GE Capital Aviation Services and aviation operations. It expects its healthcare operations to get a boost from demand for pharmaceutical diagnostics products.
Delays in projects due to the pandemic pose a threat to GE’s gas power business, although it does expect to lower fixed costs for this segment from $3.1bn in 2019 to $2.5bn in 2021.
|Operating Margin (TTM)||6.01%|
|Quarterly Revenue Growth (YoY)||-7.6%|
General Electric share price vitals, Yahoo Finance, 29 July 2020
Free cash flow will likely be positive for Gas Power in 2021, with margin in the high single digits, although the company reiterated overall negative free cash flow expectations for 2020.
For the full year, Zacks consensus estimates are projecting revenues of $79.49bn, which would represent a 24.81% decline in revenue compared to the same period last year. In terms of valuation, GE is currently trading at a forward P/E ratio of 281.6 compared to the industry average of 20.19. The company is currently sporting a ‘sell’ rating’ from Zacks.
Among 15 Wall Street analysts polled by MarketBeat, the consensus is to buy the share price. This is a rating held by eight analysts, while seven rate it a hold. The average 12-month share price target is $9.30 — a 34.9% uptick on GE’s current share price.