General Electric reported a 2020 third quarter GAAP loss of $1.16 billion or $0.13 per share on revenues on revenues of $19.4 billion, down 17%.  In the 2019 third quarter, the company reported a comparable net loss of $1.3 billion of $0.15 per share.

Shares of GE have underperformed both the broader market and GE’s industrial peer group since the onset of the COVID-19 pandemic.  The weak performance reflects primarily the company’s exposure to the aviation business, which prior to the pandemic was GE’s most profitable by far.  With both the suspension of production of Boeing’s 737 Max aircraft and more recently the sharp drop in air travel due to the COVID-19 pandemic, GE Aviation’s profitability has collapsed.  At this point, the consensus view, as articulated by Boeing in its 20Q2 conference call, is that air traffic will not return to pre-pandemic levels for three years.  Some see a permanent reduction in air travel demand.

In my view, the most appropriate way to look at GE’s stock valuation is to consider the company as a single enterprise.  In this analysis, I compare its current valuation to peers.  My calculations for GE’S enterprise value-to-EBITDA multiple at 31-Dec-19 and 30-Mar-20 are given in the table below:   

Based upon management’s guidance given at General Electric’s 2020 Outlook meeting on March 4th, I project 2020 Industrial Leverage EBITDA of $11.6 billion, up roughly 3% from 2019.  Industrial Leverage EBITDA was given in the appendix to the company’s 2020 Outlook presentation slides and was meant to be used in the calculation of GE Industrial’s ratio of EBITDA-to-net debt.  The measure excludes non-operating pension benefit costs, which is the part of total pension costs that cover all items that relate primarily to the funding of GE’s pension plans, excluding the service cost.

Given the complexity of its business mix and financial structure, valuing GE is not an easy exercise even under benign economic conditions.  The task is made even more difficult when there is considerable uncertainty about prospects for the global economy.

General Electric (GE) posted 2018 fourth quarter results that were viewed positively by the financial community primarily because there were no new major negative surprises. Although management gave an update on the company’s recent progress and certain aspects of its outlook, it declined to give specific guidance on 2019 earnings. It did not set a date for CEO Larry Culp’s presentation to the financial community. Mr. Culp said that 2019 should be viewed as more about the “how” than the “how much,” suggesting that the investment community should focus more in 2019 on the company’s achievements in addressing organizational, structural and execution issues and less on earnings. This is a clear indication that 2019 will be another “reset” year.

General Electric (GE) reported 2018 third quarter results on Tuesday, October 30.  This was the first conference call for newly-installed Chairman and CEO H. Lawrence (Larry) Culp, Jr. Continue reading →

On June 26, General Electric (GE) announced the outcome of its strategic review. Besides divestiture actions already announced, the company said that it will spin-off its Healthcare business over the next 12-18 months and distribute its 62.5% stake in Baker Hughes, a GE company (BHGE) over the next two to three years. Those actions would leave GE with three core businesses – Aviation, Power and Renewable Energy. Continue reading →

General Electric reported disappointing 2018 second quarter GAAP earnings attributable to shareholders of $736 million or $0.07 per share, down 30% from $1.03 billion or $0.10 per share last year.  Adjusted (Non-GAAP) EPS, according to the company’s definition, was $0.19 per share, down 10% from $0.21.  Non-GAAP EPS exceeded consensus estimates by a penny. Continue reading →

“You can’t grow long-term if you can’t eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what management is”
      -Jack Welch

As everyone knows, this has been a tough year for GE shareholders.  GE’s stock is down 40.8% year-to-date (thru 11/17) on a total return basis.  By comparison, the S&P 500 has delivered a 17.3% positive total return.  GE’s stark underperformance reflects both the decline in its earnings expectations – its 2017 operating EPS guidance (industrial operating + verticals) has been cut from $1.60-$1.70 at the beginning of the year to $1.05-$1.10 currently – and now the halving of the dividend.  2018 has been characterized as a “reset” year.  Management currently anticipates 2018 adjusted EPS of $1.00-$1.07, which is roughly half of the previous target of $2.00.  According to management, the change in performance and outlook reflects primarily sharply reduced expectations for GE’s Power business and continued weak performance in Oil & Gas and Transportation. Continue reading →