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Dismal 2Q17 Results Drag General Electric into Murky Waters

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Part 10
Dismal 2Q17 Results Drag General Electric into Murky Waters PART 10 OF 10

How Wall Street Views General Electric after Its 2Q17 Earnings

Analysts’ recommendations

General Electric (GE) has a mean rating of 2.4, indicating a “buy” suggestion from Reuters-surveyed analysts. Following GE’s 2Q17 results, one analyst with a “strong buy” recommendation converted it to a “buy,” while another analyst with a “buy” recommendation converted it to a “hold.” One of the analysts with a “hold” recommendation on General Electric shifted it to a “sell.”

To summarize, following GE’s 2Q17 results, four analysts have given it “strong buy” recommendations. An equal number of analysts have advised investors to “buy” GE stock. Two analysts have “sell” opinions on GE stock.

How Wall Street Views General Electric after Its 2Q17 Earnings

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Analysts’ price targets for GE and its peers

Just a few days before GE’s 2Q17 earnings, Stephen Tusa of JPMorgan Chase cut the stock’s 12-month price target from $27.0 per share to $22.0 per share. He stated that over the last several years, GE has invested in areas it shouldn’t have.

GE has a consensus target price of $30.4 per share, indicating a return potential of 19.5%. Let’s take a look at its peers’ price targets and return potentials:

  • United Technologies (UTX) has a target price of $127.5 and a return potential of 3.6%.
  • Illinois Tool Works (ITW) has a target price of $149.8 and a return potential of 5.5%.
  • Honeywell International (HON) has a target price of $142.2 and a return potential of 3.4%.
  • 3M Company (MMM) has a target price of $205.1 and a return potential of -2.6%.

Why are analysts divided on GE?

On the margin front, significant restructuring costs and pension costs have put pressure on General Electric’s operating income. In fact, if we take into account GE’s GAAP (generally accepted accounting principles) operating income in 2Q17, it barely crossed 9% in terms of industrial operating margins. Many of the company’s cost-curtailing exercises have yet to bear it fruit.

Secondly, the industrial operating cash flow problem isn’t going to reverse anytime soon. The company will have to do its homework on that front. This, in turn, could result in either dividend cuts or reduced stock buybacks in the coming quarters.

Market participants have concerns regarding the timing of the GE Capital and Baker Hughes (BHI) deal. The sluggish oil and gas market (UGAZ) has been weighing heavily on GE’s top line, and it’s also affected the Power segment’s prospects for 2H17.

At present, General Electric seems to be moving sideways. The company’s current period of CEO transition will only increase the element of uncertainty in its stock. Until the new CEO discloses his plans and 2018 outlook in November 2017, a question mark will likely remain over GE stock.

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