IS GE Stock Overvalued after Post-Earnings Bounce?

General Electric stock (GE) has been having a great time since the company’s Q3 earnings. GE shares gained over 25% since the Q3 earnings report on October 30 up to yesterday. The company’s Q3 revenue of $23.4 billion beat analysts’ forecast of $22.9 billion, and its adjusted EPS of $0.15 beat their estimate of $0.11. The company also raised its 2019 free cash flow outlook.

However, GE stock seems to be facing headwinds this week. After shedding 1.5% on Monday and recovering marginally yesterday, GE was falling again today. At 11:54 AM ET, the stock was down 1.1% at $11.3.

Tusa on GE

Today’s highlight was GE bear and J.P. Morgan analyst Stephen Tusa’s pessimistic comments. While talking about the GE stock movement, Tusa wrote in a note that the “key to the recent bounce in GE stock is the notion that management has set a bottom on fundamentals, with the company raising guidance a sign of change in the revision trajectory.” However, he was quick to point out that he disagrees with the logic as GE is missing on operating earnings guidance on core industrials businesses. Tusa maintained his $5 target on GE shares.

What are other analysts saying about GE stock?

Apart from Tusa, 19 other analysts surveyed by Reuters cover GE stock. Eight have a “buy” rating, nine have a “hold” raitng, and two (excluding Tusa) recommend a “sell.” The composition hasn’t really changed for the last couple of months, indicating stickiness in analyst ratings for GE.

The current target price of $10.42 indicates that the GE stock is currently overvalued by about 7.8%. Notably, GE is also trading above its median target price of $11.

GE’s transformation under Culp

General Electric is going through a massive transformation under its current CEO, Larry Culp. Culp wants GE to focus on core industrials business and bring down its leverage to improve the balance sheet. So far, Culp has undertaken various measures to make this goal happen.

During Q3, General Electric (GEannounced the sale of PK AirFinance to Apollo Global and Athene. As a part of the deal, Apollo Global received PK AirFinance’s aircraft lending platform while Athene received its existing portfolio. GE also exited locomotive company Wabtec (WAB) for $1.6 billion in cash during the quarter.

However, selling 144 million shares of Baker Hughes (BKR) was GE’s biggest cash generator during the quarter. The share sale fetched $3 billion in cash for GE. But GE still has a long way to go. There are still some red flags, and Culp may be running out of options. For now, GE shares seem to be losing their post-earnings steam.