General Electric stock dropped 3% as the market rose Wednesday after reporting its first-quarter numbers. The stock has eked out a small gain in Tuesday trading, as the S&P 500 slips.
Investors aren’t sure what to do. They are still working through all the uncertainty swirling around commercial aviation, a sector critical to GE that has been decimated by the Covid-19 pandemic.
Here’s what Wall Street is saying about the earnings report and the outlook for General Electric’s (ticker: GE) businesses.
“Bring back [Jeff] Immelt,” the conglomerate’s former CEO, wrote Melius Research analyst Scott Davis in perhaps the edgiest headline of he day. “The headline is a bad attempt at humor,” he said in a Thursday research report.
“GE is our most pandemic impacted name and the timing of this mess is cruel.”
Davis, for his part, believes the decision whether to own GE stock now comes to down to the probability the company will survive a deep recession. He thinks the odds are “extremely high” and rates shares the Buy.
Davis has a $13 price target for the stock, while GE was trading at $6.64 Thursday morning.
J.P. Morgan analyst Stephen Tusa isn’t so sure. “These are long cycle businesses,” said Tusa on CNBC. That means trends unfold gradually, often lagging behind what’s going on in the broader economy, and that the company will slowly feel more pain. “I can’t find words to describe how bad the second quarter is going to be,” he said.
Tusa believes GE has adequate liquidity. Still, he doesn’t recommend the stock and has a $5 target for the share price.
The two analysts’ price targets represent the extremes on Wall Street among large brokers. Most other analysts fall somewhere in the middle.
UBS analyst Markus Mittermaier still rates GE stock the equivalent of Buy, but cut his price target from $12 to $9 a share, a few dollars below Davis’s level, because of the grim prospects of the airline industry.
“The recovery path for aviation remains the dominant driver of the investment case,” wrote Mittermaier in a Thursday report. He doesn’t expect the number of hours flown globally to return to 2019 levels until 2024.
“While the earnings call focused on Aviation, GE is seeing Covid-19 related pressures across the portfolio including Healthcare (elective procedures), Power (project timing), and Capital (higher reserves and fewer gains),” wrote Credit Suisse analyst John Walsh in a Thursday report.
In short, there is pain being felt everywhere. “GE is taking appropriate actions, which are expected to yield $1 [billion plus] of cost and $2 [billion plus] of cash savings in Aviation,” Walsh said. He rates shares the equivalent of Hold and has an $8 target for the price.
For RBC analyst Deane Dray, the biggest surprise from GE’s earnings was a lack of any indication of what might come in the rest of the year. “In contrast, most other [industrial conglomerates] have been offering at least some sense of their potential road map for the year,” wrote Dray in a Wednesday research report. Part of the problem, of course, is that aviation will require years to recover.
Dray rates shares the equivalent of Buy, but dropped his target price by $1 to $9 a share.
GE stock is down about 41% year to date. That is a steeper drop than the declines in the Dow Jones Industrial Average and S&P 500, but it is better than the plunges in Boeing (BA) stock or U.S. airline shares. All three are tied to the future of commercial air travel.
Aerospace suppliers’ stocks that Barron’s tracks are down about 40% year to date on average, roughly matching the decline in GE shares.
Write to Al Root at allen.root@dowjones.com
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April 30, 2020 at 11:01PM
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GE’s Prospects Leave Wall Street Divided. Stock Rebounds. - Barron's
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