North America

Earnings Preview: General Electric Q4 2016 (GE)

By: Craig Bowles

Overview

General Electric Company (GE) is slated to report 4Q 2016 earnings before the bell on Friday, January 20th. Results are typically released at 6:30 a.m. ET and will be followed with a conference call webcast available through GE Investor Relations at 8:30 a.m. GE’s earnings are often viewed as a barometer on the overall health of the U.S. and global economy. Therefore, GE has the potential to influence broader markets, including the index futures, currencies, and other broad market indicators, particularly if the results are far outside the band of consensus estimates. This is the most complicated earnings release in the U.S. The Non-GAAP revenue value that analysts model for normally requires a calculation from numbers only found in the “presentation” document. Media reports often incorrectly refer to total revenue shown in the press release when comparing to consensus.

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Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): (calculated using verticals + horizontals in presentation document but sometimes included in the press release and/or earnings supplement) Analyst consensus is $0.46 (range $0.45 to $0.48). (Source: Yahoo! Finance) Consensus was $0.47 three months ago.
  • Revenues: (verticals + horizontals in presentation document have to be calculated) Analyst consensus expectations are for $33.66 bln (range $32.07 bln to $35.11 bln).
  • Adjusted Earnings Per Share (EPS) Guidance (FY 2017): Analyst consensus is for $1.66 (range $1.60 to $1.72).
  • Price/Sales of 2.4 compares to the 5-year average of 1.9. Price/Book of 3.4 compares to the 5-year average of 2.2. Price/Cash Flow of 60.4 compares to the 5-year average of 18.3. The stock yields 3.0% compared to the 5-year average 3.1%.
  • Analysts view GE with 12 (11 last qtr) Buy, 7 Hold, and 2 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 63,202 shares over the last three months and a net 231,639 shares in the past year. (source: NASDAQ.com) On April 10, 2015, GE approved a $50 billion stock buyback and added $4 billion on October 21, 2016.
  • GE shares have a 1-day average price change on earnings of 1.12%. Options are pricing in an implied move of 2.09% off earnings.

Recent News

  • 01/03: JPMorgan reiterated an Underweight rating on General Electric citing that the tax rate could drop to 0% in 2017 with fundamentals, which are more negative than envisioned a year ago, according to a post at Barron’s.com.
  • 12/30: General Electric’s CEO Jeff Immelt has no plans to retire but being 60 years old means folks will start speculating about the possible replacements, according to a post at Barron’s.com.
  • 12/20: Oppenheimer believes GE’s structural building blocks, while 2018 weighted, appear largely sound to us, with similar core portfolio profit expansion in both years, according to a post at Barron’s.com.
  • 12/16: Bernstein upgraded GE to Outperform based on investors’ day guidance, according to a post at Barron’s.com.
  • 12/14: At its 2016 Investor Day, General Electric released its 2017 guidance. The company initiated 2017 operating EPS range of $1.60-$1.70. Margins are expected to expand ~100 bps. In 2017, according to a post at Barron’s.com.
  • 12/09: Bernstein suggests that the combined General Electric and Baker Hughes (BHI) company has the potential to challenge Schlumberger (SLB) but it’s a long-term game, according to a post at Barron’s.com.
  • 12/08: Stifel is “fundamentally cautious” on industrial stocks but calls General Electric a “top pick” among their Buy-rated stocks following the Trump rally, according to a post at Barron’s.com.
  • 11/15: SEC Criticizes GE’s ‘Non-GAAP’ Metrics but Hasn’t Taken Further Action, according to a post at Morningstar.com.

Technical Review

GE shares recently tested the mid-2016 resistance area. Shares traded above $60 in July 2000, so cyclical highs have been progressively lower with each boom followed by a $30 bust. Point and figure technicians have a bullish price objective of $52.50 and their uptrend line since 2009 is in the low $20s. (Chart courtesy of StockCharts.com)

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Summary

General Electric is on track to return $90 billion to shareholders amid their move away from finance and back to manufacturing. Analysts are even more positive. Insider selling remained steady the past three months. GE beat estimates by an average of 3c the last four quarters. Estimize consensus for an adjusted EPS of $0.48 on revenue of $34.319 bln compares to analyst consensus of $0.46 on revenue of $33.66 bln. 2017 FY adjusted EPS guidance would be important, as well. The stock has struggled after beating estimates in each of the past four quarters partly because of the confusion around which numbers to compare to analyst estimates.

 

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