Goldman Sachs Remains Neutral On General Electric Following Earnings

General Electric Company GE reported its 2Q16 results with the EPS beating the estimate and the consensus.

Goldman Sachs’ Joe Ritchie maintains a Neutral rating on the company, while raising the price target from $29 to $30.

2Q16 Results

Ritchie mentioned that the Industrial EBIT for 2Q16 also beat the estimate, although it was in line with the consensus.

“Below-the-line items drove the rest of the beat,” the analyst stated, while adding, “Operationally, this was an inline quarter for GE given the solid margin performance despite weak organic growth.”

While Ritchie believes the increased B/S optionality and General Electric Digital initiatives are encouraging, the risk/reward on the stock was negatively skewed.

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2016 Outlook

The analyst also believes the consensus EPS expectations could prove to be too high, given that orders and pricing continue to weaken, while the multiple remains elevated.

According to the Goldman Sachs' report, Industrial EBIT growth appears unlikely in 2016, while the company’s organic growth guidance of 5 percent for 2H also appears to be at risk, driven by the sustained weakness in O&G and Transportation.

“From a margin standpoint, while GMs/Alstom were encouraging, we note that O&G pricing is deteriorating and is likely to remain depressed while Aviation faces mix challenges,” Ritchie pointed out.

In addition, long-term headwinds appear to be intensifying, with resource driven businesses continue to be weak.

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