GE Has `Something for Everyone,' So Bull/Bear Debate to Rage On

(Bloomberg) -- General Electric shares are on pace to lock in their biggest weekly gain since November 2016. The shares are up about 8 percent this week, after the unexpected earnings beat and outlook reaffirmation earlier today sent investors rushing into the heavily beaten down stock.

While the industrial behemoth was not expected to drop any major bad news during the first-quarter results, sentiment had worsened significantly ahead of Friday with several analysts warning about a possible guidance cut, a poor show at the power segment and weak cash flow. GE is backing its guidance for now, but as JPMorgan analyst Stephen Tusa said, the results had “something for everyone” and so the bull vs bear debate on GE will continue to rage on.

GE Has `Something for Everyone,' So Bull/Bear Debate to Rage On

Here’s a roundup of what analysts had to say after the results. GE shares jumped as much as 7.6 percent earlier today.

Goldman Sachs, Joe Ritchie

(Neutral, price target $14)
“The biggest positive from the quarter was better-than-expected EBIT in all of GE’s segments, with the exception of oil and gas.”

Believes “bears will hone in on tepid industrial free cash flow to start the year, as well as a power market that is trending below GE’s expectations.”

Notes GE recorded a $1.5 billion reserve for potential charges related to the WMC FIRREA investigation. “While the outcome could turn out to be materially different from this reserve, we believe it was prudent to address the potential liability as it attempts to quantify the credit quality concerns of GE Capital, a key debate on the stock today.”

Stifel, Robert P. McCarthy

(Hold)
“The quarter still showed continued stresses of fundamental outlook with incrementally weak power market, as well as continued cash concerns.”

“GE Capital WMC reserving, cash cost takeout, divestiture progress was encouraging, but we still see risk to 2018 EPS guidance of $1.00-$1.07 and Industrial free cash flow of $6 billion-$7 billion.”

“We think likely management pulls guidance once portfolio review is complete.”

“Shares will give back early gains as investors look beyond the set up and the optics.”

Barclays, Julian Mitchell

(Equal weight, price target $16)
“The reserve for WMC FIRREA is lower than we feared, although it is not clear if further reserves may be needed.”

“On divestments, progress appears to be made on Transportation, with imminent news on the disposition likely.”

“Overall, we think amidst a backdrop of very negative investor sentiment towards the name, the figures/commentary should provide some relief.”

Cowen, Gautam Khanna

(Market perform, price target $12)
“These results, coupled with in-line free cash flow losses, may sustain the stock’s recent rally.”

Notes total orders were flat organically, as strength in aviation and transportation was offset by continued large declines at power. Healthcare orders growth was solid.

RBC, Deane Dray

(Sector perform, price target $15)
“Results were encouraging, and certainly better than feared given worries about a potential full-year guidance cut.”

“The best performers continue to be Aviation and Healthcare, with Aviation upside accounting for about half of the operating line beat, led by 16 percent growth in spares. The weakest link in the GE story continues to be Power, where orders declined by 29 percent.”

Says not surprised by the size of WMC reserve.

JPMorgan, Stephen Tusa

(Underweight)
“After the recent run, we think the stock already more than reflects a ‘not a disaster’ quarter at a less than 5 percent free cash flow yield.”

“Bottom line, unlike the past several quarters that were undeniably weak, this has something for everyone so there will be more debate, but we don’t see a turn in fundamentals as supporting upside.”

William Blair, Nicholas Heymann

(Outperform)
Says investors are “more likely to buy GE for its secure and sustainable 3.4 percent dividend yield today while waiting for a better future understanding of GE’s sales and earnings growth potential.”

“The largest negative remains the outlook for GE Power, where end-markets are trending weaker than GE anticipated for 2018.”

While GE’s $1.5 billion reserve related to the WMC FIRREA investigation by the Department of Justice is “clearly a negative, it also should quantify and remove the last lingering area of concern regarding the adequacy of GE Capital’s reserves.”

©2018 Bloomberg L.P.