GE earnings: Stocks have rallied while earnings estimates have fallen. Will investors or analysts be right this time?

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General Electric Co. is scheduled to report first-quarter results before Tuesday’s opening bell, and there may be some concern that investors will be disappointed, given that stocks in the industrial conglomerate have risen even as analyst expectations Have decreased.

Similar dynamics had occurred ahead of GE’s long-awaited Investor Day on March 10, as GE shares, + 1.62% fell 12.4% in two days despite the company announcing a $ 30 billion agreement to combine its aircraft leasing business with AerCap Holdings NV AER. , + 0.44% and provided guidance that was in line with expectations. Some analysts suggested that the investor’s post-day sell-off was the result of investors being overly optimistic, as stocks were up 30% in the year to date before the meeting and closed at a high of almost 3. years two days before the meeting. . Since the industrial conglomerate reported fourth-quarter results on January 26, the FactSet consensus for earnings per share (EPS) has fallen 67% and revenue has fallen 5.1%, with estimates for three of the four GE business units in decline. Meanwhile, the outlook for industrial free cash flow (FCF) is now more than four times more negative than it was three months ago. And yet GE shares, which were up 1.9% in midday trading Monday, are up 22.2% since late January. In comparison, the publicly traded fund SPDR Industrial Select Sector XLI, -0.02% has advanced 16.7% since the end of January and the S&P 500 SPX index, + 0.15% has gained 8.7%.

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FactSet, MarketWatch

As an example of the difference in the outlook for earnings and stocks, UBS analyst Markus Mittermaier recently raised his stock price target to $ 17 from $ 15, citing an acceleration of the transformation into a “simpler” company, but cut his First quarter EPS. estimated at 2 cents from 3 cents, and reduced its outlook for 2021 to 26 cents from 29 cents. The Numbers Earnings: The average estimate from the 17 analysts surveyed by FactSet is for the first quarter adjusted EPS of one cent per share, down from 5 cents a year ago. On January 29, FactSet’s EPS consensus was 3 cents. Estimize, a crowdsourcing platform that collects estimates from buyer analysts, hedge fund managers, business executives, academics, and others, has a much higher consensus EPS estimate of 4 cents. Revenue: The FactSet consensus for revenue is $ 17.59 billion, down from $ 20.52 billion a year ago. The consensus is down by nearly $ 1 billion, from an estimate of $ 18.54 billion on January 29. The consensus estimated revenue is $ 17.91 billion. For GE’s business segments, FactSet’s revenue consensus for Aviation has fallen to $ 5.28 billion from $ 5.39 billion on January 29, has decreased for Energy to $ 4.00 billion from $ 4 , 16 billion and has dropped for Health to $ 4.09 billion from $ 4.10 billion. The estimate has increased for renewables to $ 3.26 billion from $ 3.22 billion. Industrial Free Cash Flow: The average FCF estimate, from the two analysts who provided estimates to FactSet, is now negative $ 1.21 billion, with a range of negative $ 870.0 million to negative $ 1.55 billion. On January 29, the range was negative from $ 747.0 million to positive $ 216.0 million. Stock movements GE shares have rallied after the last two earnings reports, by an average of 3.6%, after falling by an average of 3.8% after the previous two earnings reports. During the last 10 earnings reports, the stock has gained six times, for an average gain of 7.5%, and has fallen on average 4.3% after the other four reports. Since the end of January, the percentage of Wall Street analysts surveyed by FactSet with the equivalent of buy ratings has decreased from 68% to 60%, while the percentage of analysts with retention ratings increased from 32% to 40%. No analyst has the equivalent of the sell ratings of GE shares. Shares of Baker Hughes Co., BKR, + 0.57% closed the first quarter at $ 21.61, or an increase of $ 11.11, or 105.8%, from where they closed the same quarter a year ago. GE said in its fourth quarter earnings report that it owned a 30.1% stake in Baker Hughes. As of April 16, Baker Hughes said it had a total of 1.04 billion Class A and Class B shares outstanding, which means that GE had about 313.5 million Baker Hughes shares at the end of January. A price gain of $ 11.11 on that number of shares would equal roughly $ 3.5 billion. Last year, GE posted a $ 4.6 billion loss on its stake in Baker Hughes.