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General Electric Jumps On Earnings Beat, FCF Guidance 'Well Ahead Of Buy-Side Expectations'

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General Electric Jumps On Earnings Beat, FCF Guidance 'Well Ahead Of Buy-Side Expectations'

General Electric Company (NYSE: GE) shares were rocketing higher Wednesday after the company beat analyst estimates for third-quarter revenue and reported a surprise profit.

What Happened: GE reported adjusted third-quarter earnings per share of 6 cents, beating analyst estimates of a 4-cent loss. Quarterly revenue of $19.42 billion also exceeded analyst expectations of $18.73 billion. Revenue was down 16.8% from a year ago.

Related Link: Goldman Sachs Calls General Electric The 'Ultimate Self-Help, Vaccine Leverage Story'

Aviation revenue dropped 39% in the third quarter, and health care revenue was down 7%. GE reported $514 million in industrial cash flow, down from $650 million a year ago.

Looking ahead, CEO Larry Culp said GE is targeting industrial free cash flow of $2.1 billion in the fourth quarter and expects that cash flow to remain positive in 2021.

Why It’s Important: BofA Securities analyst Andrew Obin said in a note that GE’s earnings and free cash flow numbers are encouraging.

“Net-net, 2H FCF outlook of ~$3.0bn compares favorably with our prior $2.7bn forecast and we believe was well ahead of buy-side expectations,” the analyst said. 

GE’s order log is still relatively weak, and the company is setting aside reserves following the SEC’s recent announcement that it is considering a possible civil suit against GE related to the company’s insurance business, he said.

Industrial orders dropped 28% in the third quarter. GE reserved about $100 million for all ongoing SEC investigations.

Overall, Obin said GE’s quarter was better than expected, and he’s bullish on the stock given its operations improvements, attractive valuation and medium-term FCF trajectory.

BofA has a Buy rating on GE with an $11 price target. 

GE Price Action: GE shares were trading 8.66% higher at $7.72 at last check Wednesday. 

Benzinga’s Take: The earnings beat was much needed for GE investors after the company disclosed it received a Wells notice from the SEC indicating a potential lawsuit earlier this month.

GE investors are likely growing tired of hearing about how a turnaround is just around the corner after years of underperformance and lackluster cash flow and earnings numbers, and the stock remains a show-me story at this point.

Photo by Bubba73 via Wikimedia

Latest Ratings for GE

DateFirmActionFromTo
Nov 2020OppenheimerUpgradesPerformOutperform
Oct 2020Deutsche BankMaintainsHold
Oct 2020Morgan StanleyMaintainsOverweight

View More Analyst Ratings for GE
View the Latest Analyst Ratings

 

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