GE Will Still Shine - Barron's

General Electric’s (GE) earnings miss on Friday was a shocker even to management, and market reaction was understandable: GE has rarely disappointed the Street, and the $0.44 EPS was sharply below the $0.51 analysts expected. GE also lowered 2008 guidance from $2.43/share to $2.20-$2.30.

Barron’s admits it was overly rosy on GE in June, but says investors shouldn’t throw out GE with the credit crisis bathwater. GE’s gas and wind turbines, jet engines and train units are riding the global infrastructure boom, with infrastructure accounting for 40% of GE’s earnings and a divisional 11% growth in Q1.

Bears claim GE’s financial arm will continue to smother those earnings, and that cutting some media or financials girth might help. But media stocks are so out-of-favor that it’s likely best to hold on. Besides, GE’s P/E is low—now at 14.2 times 2008 consensus earnings, and 13 times 2009. Even if guidance goes lower, the stock will not likely fall below $28.

Barron's sees 10%-11% earnings growth in 2009, and if GE just meets current guidance for 2008 and 2009, Friday’s $32 share price could reach $40 by 2009. Add in their 3.9% dividend, and Barron’s says this “great global business” could see a 30% gain.

======================

Respected CEO Jeffrey Immelt reaffirmed previous guidance just a month ago and even bought stock recently, but SA contributor Davy Bui says his job may now be on the line unless he gets the stock moving soon. Donald Johnson says GE’s dismal results may be a harbinger for other healthcare stocks. Todd Sullivan recommends that GE spin off its infrastructure division to shareholders. Then investors can enjoy that growth, and separately ride the eventual recovery of financials and healthcare.

Comments

[Donald Johnson:]

I'm not sure a PE means anything unless you compare it with a company's growth rate over the last five years and to its projected growth rate for the next five years. Also, if a company has a PEG ratio of, say, 1.4, how reliable is that as a valuation metric, given the uncertainty about earnings for the next quarter, much less the next five years.

My guess, and it's only a guess, is that the market will bet on slower growth rates and the PE ratio will continue to come down closer to the actual growth rate. That means, the stock seems more likely to fall than rise over the next 12 months, but we always must keep the Black Swan in mind and admit no forecasts are that reliable, not even those issued by a GE. Yet, as this site proves, we all want forecasts and are willing to stick our necks out. Forecasts are made to be broken and forgotten.

2008 Apr 13 05:17 PM

[Seasoned ve...:]

Attention: "Market Players"

Please continue to add to the noise factor on fear and continue to push GE stock down. As a professional value investor every drop continues to provide buying opportunities for myself and my clientele to make future profits on purchasing GE now. Always GARP !

2008 Apr 13 06:27 PM

[Dan Jacome:]

We bought GE Friday @ $32

1) infrastucture story still intact

2) wide moat company fetching a market multiple (~14-16).

3) $30 has proven to be a multi yr support for the stock, so the downside is $2 bucks with upside of perhaps 20% if you can wait it out and let GE drift back to $40.

we're not stupid: GE is the hardest company in the world to analyze and they never miss, so the miss is distrubing. Let's see some follow through this week from the buy side;

GE traded 366M shares Friday -- go back 5 yrs -- GE doesn't trade that sort of action frequently.

2008 Apr 13 08:23 PM

[comsen:]

03/10/08 GE @ $32.00. 04/11/08 GE @ $32.00. No perspective in any Media analysis. What a difference 30 days does not make.

2008 Apr 13 10:10 PM

[Voice of Re...:]

I'm going out on a limb and make a wild prediction. GE's stock as well as the rest of the stock market will see their stock values go up and down over the next 12 months. Some here should write that down so they don't forget.

The chicken little mentality is really starting to get a firm grip. That means we're very close to a bottom. Here's another hot tip: Buy low. Sell high. As obvious as it sounds, most people do the exact opposite. They really do.

2008 Apr 14 12:03 AM