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GE (GE) Up 16.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for General Electric (GE). Shares have added about 16.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is GE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

General Electric Q3 Earnings Miss, Revenues Beat

General Electric reported third-quarter 2022 adjusted earnings (excluding 57 cents from non-recurring items) of 35 cents per share, which missed the Zacks Consensus Estimate of 47 cents. The bottom line declined significantly year over year.

Total revenues of $19,084 million surpassed the Zacks Consensus Estimate of $19,035 million. The top line increased in low-single digits year over year.

Segmental Discussion

Aerospace revenues jumped 24% year over year to $6,705 million in the reported quarter, driven by growth in commercial services due to a significant increase in shop visits, strong spare part sales and favorable prices. Organic revenues rose 25% year over year. Orders grew 6% year over year. Organic orders also increased by the same amount.

Healthcare revenues in the reported quarter totaled $4,613 million, up 6% year over year. Revenues increased 10% organically. Growth in imaging and ultrasound boosted segmental revenues. Orders were flat on a reported basis but increased 4% organically.

Renewable Energy revenues totaled $3,594 million, down 15% year over year. Organically, the same declined 10%. Results were hurt by lower U.S. onshore wind volumes. Orders dropped 43% year over year on a reported basis and 41% organically.

The Power segment’s revenues were down 12% year over year to $3,529 million. Organic revenues declined 5%. Softness in aero-derivative unit shipments at Gas Power and the exit of the new build coal business at Steam weighed on the segment’s performance. Orders climbed 14% on a reported basis and 20% organically.

Margin Profile

In the quarter under review, General Electric’s cost of sales (cost of equipment sold+ cost of services sold) ascended 7.2% year over year to $14,371 million. Selling, general and administrative expenses increased 4.5% year over year to $2,868 million. Research and development expenses totaled $686 million, reflecting an increase of 9.4%.

General Electric’s adjusted profit was $1,064 million, down 19% year over year. Margin in the quarter was 5.8%, down 160 basis points (bps). On a reported basis, the Aerospace segment reported profit of $1,284 million, up 52% year over year. Healthcare segment profit was $712 million, up 1% year over year. Renewable Energy segment incurred a loss of $934 million compared with a loss of $151 million in the year-ago quarter. Power segment reported a profit of $141 million, down 31% year over year.

Balance Sheet and Cash Flow

Exiting the third quarter, General Electric had cash, cash equivalents and restricted cash of $12,596 million compared with $15,770 million at the end of December 2021. The company’s long-term borrowings were $26,121 million at the end of the third quarter compared with $30,824 million at the end of December 2021.

Adjusted free cash flow in the reported quarter was $1,189 million, down 11.5% year over year.
General Electric repurchased around 4.5 million shares for $300 million during the third quarter.

Outlook

General Electric expects organic revenues to grow in the low-end of high-single-digit growth range for 2022. The company estimates adjusted organic profit margin to expand 125-150 basis points in the year. Adjusted earnings are predicted in the band of $2.40-$2.80 per share. The mid-point of the guided range — $2.60 — falls short of the Zacks Consensus Estimate of $2.69. GE expects a free cash flow of approximately $4.5 billion for the ongoing year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, GE has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, GE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

GE is part of the Zacks Diversified Operations industry. Over the past month, Danaher (DHR), a stock from the same industry, has gained 3.8%. The company reported its results for the quarter ended September 2022 more than a month ago.

Danaher reported revenues of $7.66 billion in the last reported quarter, representing a year-over-year change of +6%. EPS of $2.56 for the same period compares with $2.39 a year ago.

For the current quarter, Danaher is expected to post earnings of $2.44 per share, indicating a change of -9.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Danaher. Also, the stock has a VGM Score of D.

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