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.