Past Performance: General Electric (NYSE:GE) has not missed EPS expectations in the past four years. GE is expected to make $0.35 per share when they report in April. If you're looking for a possible EPS beat, the odds are pretty good considering General Electric has only met expectations twice over the past years as well. EPS has grown in the first quarter since 2010, moving from $.20, to $.33, to $.34 in 2012. The finance arm of GE may be to blame for the decrease in EPS from the first quarter of 2009, $.26 per share, to the first quarter of 2010, $.20.
GE stock opened the year at $21.34 and has moved upward with the market to current levels of roughly $23.25 per share, representing an 8.3% price appreciation in less than three months. The stock has strong support at $22.45 per share and faces resistance at $23.75 per share. Currently, the technicals are pulling back from overbought levels and are showing GE to be fairly valued.
Fundamentals: GE has a current P/E of 18.00, a forward P/E of 12.57, a P/S of 1.66, and a PEG of 1.33. The industrial sector as a whole trades with a P/E of 21.6 and a forward P/E of 17.1. Meanwhile, the S&P 500 trades at a 20.6 current P/E and a forward P/E of 17.5. Comparing the three strictly off of current and forward P/E ratios, GE is cheaper than both the industrial sector average and the S&P 500 average. If the industrial sector were to regain its place as a market outperformer, GE would be poised to reap the benefits.
The P/S ratio and PEG ratio both show that the stock price could use a short-term pullback. Considering the undervalued nature of the industrial sector as a whole, GE should not have overvalued metrics on both the P/S and PEG ratios. GE has cut total current liabilities by nearly 15% YOY from 2011 to 2012. Also, GE has cut total liabilities by a little over 6% in that same time frame.
The Story: GE is doing everything in its power to ready itself for the sequester from a liabilities standpoint. $1 trillion in budget cuts is sure to impact General Electric's bottom line from both the government contract side and the consumer demand side. GE has been cutting costs and slashing overhead, one of those moves was selling the 49% stake in NBC Universal to Comcast (NASDAQ:CMCSA). GE has regained a focus on their core business, and bringing value back to the shareholders. They are so committed to doing so that CEO Immelt has devoted $10 billion of GE's cash to buy back shares.
The one area that GE could use work on is on the assets side of the balance sheet. The cash position shrank roughly 8.5% YOY from 2011 to 2012, net receivables have fallen 13% over the past three years, and inventory levels have increased by 33% over the past three years. If GE can reduce inventory levels, and increase net receivables just slightly, the balance sheet and P/S ratio would both improve greatly.
How to Play It: GE is one of the biggest and best industrial plays in the market. A short-term pullback would mean a buying opportunity, and even bring valuations back in line. Long term, GE provides peace of mind to most of their shareholders. While General Electric is near the 52-week high, that just means investors should wait for a buying opportunity on a pullback. My 52-week price target: $28.00.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Always consult with a registered financial professional before adding a new position to your portfolio. Investing involves a significant risk of loss, as such never invest more than you can afford to lose.