Goldman Sachs Analyst Expects GE to Remain Range-Bound

Expect shares of General Electric Co. (GE) to remain range-bound for at least a few quarters as investors keep the multi-national conglomerate in the “penalty box” after its earnings miss last week, says Goldman Sachs analyst Deane Dray.

He downgraded GE to “neutral” from “buy” to reflect the company’s near-term loss of its position as one of just a few “bullet-proof, consistent earnings growers.”

In a note to clients, Mr. Dray said $0.05 of the $0.07 earnings miss came from GE’s Commercial Finance business, while its U.S. Healthcare and consumer/appliance business were less of a factor.

He added:

That said, the U.S. Macro environment remains challenging, and GE cut 2008 earnings guidance in three of four industrial segments.

The analyst lowered his 2008 and 2009 earnings per share estimates for GE from $2.43 and $2.70 to $2.22 and $2.45, respectively. His price target is $34 per share.

United Technologies Corp. (UTX) is Mr. Dray’s top pick in the multi-industry sector, but he also said neutral-rated names like Danaher Corp. (DHR) and ITT Corp. (ITT) are in a good position for upside.

Comments

[No Moss]

I'm curious how an analyst can say that the 2008 earnings will be $2.22 per share. The best that GE can do is say between $2.20 and $2.30 per share, and obviously they can't even predict their current earnings exactly, based on Q1 results.

GE can be drug down by a deep recession or pushed up by a recovery in the US and world economy. We're just now getting economists to agree that we're in a recession, which has been a good historical indicator that we're about to ascend again.

I'd rather look at GE from a macroeconomic point of view than try to second-guess their numbers, which is largely an exercise in pseudo-finance. The world has to change quickly to build an infrastructure that is more efficient, less polluting, and can provide for the rising expectations of huge, formerly poor populations. Very few companies have the scale to do that. GE is one.