<p>In previous articles on General Electric (NYSE: GE), I have been down on the company’s short-term outlook. Granted, they have made some smart moves, such as hiring former Danaher (NYSE: DHR) CEO Larry Culp 2018. But that alone may not be enough to help GE weather the current headwinds.
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And I’m not just talking about the new coronavirus. Even before the eruption hit the world, General Electric had to put out many fires. Think of the headwind around GE Aviation and Boeing (NYSE: BA) 737 Max grounding. Or the continued losses at GE Power. And so that we do not forget the potential financial mines within GE Capital?
Nevertheless, the GE share has taken a big hit since the beginning of March. Shares have fallen more than 40% since then. And while other stocks have recovered from their low levels in mid-March, the company’s shares have not seen a corresponding decline.
In other words, General Electric’s share price can now better reflect its current risks. But that’s not to say I want to jump into it right now. The pandemic added more to Mr. Culp’s plate. I’m sure of his ability to handle a turnaround. But it will not happen a quarter or even two quarters from now on.
With a rebound an ongoing work, there is plenty of time to jump into the GE share. With the company still coping with the storm, a “wait and see” method may be warranted.
Expect Turnaround to take a while for GE
Previous problems with General Electric continue. The pandemic has just made them much bigger problems. Take GE Aviation, for example. The 737 Max incident meant more difficult times for the company’s crown jewel. Add to that what has basically been a basis for most air travel and expect more problems in the short term.
How about the other devices? Improvements to GE Power, GE Capital and GE Healthcare can help move the needle. But the lion’s attention belongs to the aviation unit. How this business performs over the next few years may make or break GE shares.
Emphasis on “the next few years.” Current aviation issues do not just disappear when the pandemic ends. As UBS’s Markus Mittermaier recently said in a research note, demand for commercial air travel may not return to 2019 levels until 2024.
Still, Bank of America analyst Andrew Obin has a more optimistic grip. He admits that it is a long way to go back for new planning orders. But the aviation market’s aftermarket (parts-and-service) – GE Aviation’s profit center – should come back much faster.
In short, things remain a mixed bag. When I go into upcoming results and guidance updates, I would not be so sure that we are turning a corner.
How about revenue?
General Electric announces the next win on April 29. According to Yahoo! Finans, the 16 analysts who cover the share, give earnings calculations for the first quarter of 2020 (end of March 31) of between 5 cents and 15 cents per share, with an average of 8 cents per share.
Investors obviously expect a sharp decline from the previous year’s quarter (Q1 2019 earnings of 12 cents per share). But what happens if revenues fall at the end of estimates? Or worse? Remember, Wall Street does not have much love for GE shares. Worse than expected results, or more bearish guidance from the company, may send the stock lower.
But what if news is better than expected? Will stocks not see a boom?
In my opinion, bad news that sends shares at $ 5 per share is more likely than good news that sends it to $ 10 per share. With this in mind, it does not make sense to go all-in on General Electric right now.
Other potential risks also remain. If they are achieved, expect stocks to fall further. I’m talking about the company’s funded pension and long-term care liabilities. This only adds another layer of uncertainty for investors to handicap.
That being said, this is not a good stock for cards. It’s too late to pursue that opportunity. So, what is the most likely path? GE stocks are likely to trade in the spectator space in the coming quarters. Bad news will send it down a little lower. But crumbs of good news will increase it again. Either way, the stock stays in simple numbers for quite some time.
The conclusion on GE stock
At just over $ 6 per share, General Electric offers a high potential return in relation to risk. But do not be afraid to miss here and buy shares as soon as possible. It will take time for the company to put out its many fires. Although the problems with GE Aviation are less bad than predicted, other ticking time bombs such as long-term care and pension liabilities may return to haunt the company.
However, the GE share is not a short-term candidate. There is still a chance that shares will increase to $ 10 on good news. This possibility is not enough to justify a purchase before the result.
When I sit on the fence, I see a “wait and see” strategy as the safest way to play this fallen layer.
Thomas Niel, contributor to InvestorPlace, has been writing a stock analysis for web-based publications since 2016. As of this writing, he had no position in any of the above-mentioned securities.