How Will General Electric Stock Trend Following Q3 Earnings?

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General Electric

General Electric (NYSE: GE) is scheduled to report its Q3 2022 results on Tuesday, October 25. We expect GE stock to see little movement due to revenues and earnings falling short of consensus estimates. Slowing economic growth, continued supply chain disruptions, and a strengthening dollar is expected to weigh on GE’s Q3 performance. That said, we believe that GE stock is undervalued, as discussed below. Our interactive dashboard analysis of General Electric’s Earnings Preview has additional details.

(1) Revenues expected to be below the consensus estimates

  • Trefis estimates GE’s Q3 2022 revenues to be around $18.4 billion, reflecting no growth from the prior year quarter, but slightly below the $18.7 billion consensus estimate.
  • While GE’s aviation business has been a drag on its revenue growth in 2020 and 2021, it has seen a rebound over the recent quarters. While this trend is expected to continue, material and labor shortages may hamper near-term growth.
  • The company’s healthcare business has also seen a rise in demand of late, with a rebound in total procedures volume, a trend expected to continue.
  • Looking at Q2, GE reported a 2% rise in total revenue to $18.6 billion, primarily led by the Aerospace business, up 27% y-o-y, while Healthcare was up 1%, primarily offset by a 23% fall in Renewable Energy and 2% decline in Power revenues.
  • Our General Electric’s Revenues dashboard offers more details on the company’s segments.
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(2) EPS likely to be below the consensus estimates

  • GE’s Q3 2022 adjusted earnings per share (EPS) is expected to be $0.44 per Trefis analysis, compared to the $0.47 consensus estimate.
  • GE’s adjusted net income of $861 million in Q2 2022 reflected a significant 3.5x rise compared to the $244 million figure seen in the prior year quarter. This can be attributed to net margin expansion and higher sales.
  • Looking forward, for the full-year 2022, we expect the adjusted EPS to be higher at $2.60, compared to $2.11 in 2021.

(3) GE stock looks undervalued

  • We estimate General Electric’s Valuation to be $93 per share, reflecting a significant 38% upside from the current levels of $68.
  • At its current levels, GE stock is trading at just 26x forward EPS estimate of $2.60, compared to the last two-year average of 36x.
  • GE stock also stands to benefit from its focus on reducing its debt. GE’s current debt of around $38 billion compares with a significant $110 billion figure in 2018. The company has sold several of its assets to reduce its debt.
  • Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

While GE stock looks undervalued, it is helpful to see how General Electric’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Honeywell vs. Amkor Technology.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 GE Return 9% -28% -72%
 S&P 500 Return 0% -25% 60%
 Trefis Multi-Strategy Portfolio -2% -28% 187%

[1] Month-to-date and year-to-date as of 10/17/2022
[2] Cumulative total returns since the end of 2016

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