General Electric's Ramp Up The Rest Of The Year Is Key, Says Morgan Stanley

General Electric Company’s GE performance in the latest quarter was similar to the prior two quarter, and the 2H ramp-up is likely to be key since the “implied segment income acceleration looks extremely challenging, Morgan Stanley’s Nigel Coe said in a report. He maintained an Equal-weight rating on the company, with a price target of $32.

General Electric reported its headline EPS at $0.51, significantly ahead of the Street expectation of $0.46. The industrial segment recorded a 1 percent decline in organic growth, short of the flat estimate. The segment’s income came in $4.1bn, in-line with expectations, backed by more favorable margins of 14.4 percent. The favorable service mix was likely a factor, analyst Nigel Coe mentioned.

Quarter Similar To Previous Ones

“The texture of this quarter is very similar to the two most recent quarters, with exceptionally weak orders, down 16 percent ex-Alstom (-30 percent equipment), due to weak O&G/Transportation and tough Power/Aviation comps, driving a sequential decline in the equipment backlog from $88bn to $86bn,” Coe wrote.

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Performance In Back Half

General Electric projected a substantial upturn in organic trends in the back half of the year, forecasting 15 percent organic growth at Power. The company maintained its guidance of 2-4 percent organic growth and EPS of $1.45-$1.55.

“This 2H ramp-up is key as we believe that the 2H implied segment income acceleration looks extremely challenging based on today's trends and this of course has implications for 2017. In this sense, the company is focusing attention on the Aviation outlook, specifically the LEAP ramp-up, with a forecast for flat Aviation margins in 2017 and flat/up Aviation margins in 2018,” the analyst commented.

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