General Electric: Slowing Order Growth Will Limit Any Significant Uptick

| About: General Electric (GE)

Diversified business conglomerate General Electric (NYSE:GE) is facing slower order growth in the last two quarters. This is likely to impact its EPS unfavorably in the current year as well as the next year. While energy infrastructure, aviation and healthcare segments witnessed slow down in the orders, transportation segment orders alone showed growth.

General Electric's total orders for the third quarter were $21.5 billion. This is 5 percent lower than last year. In the second quarter, total orders were $23.1 billion, which was one percent down. While the equipment orders dipped 6 percent, service orders slipped 4 percent.

This is due to the 12 percent fall in energy infrastructure division. Though oil and gas orders recorded 10 percent growth, it failed to offset the 24 percent drop in the energy orders of $3.4 billion. Similarly, services orders in the energy division slipped 8 percent, while oil and gas service orders rose 3 percent.

On the pricing front too, GE faced pressures in the energy division, where it suffered 1.4 percent. Similarly, healthcare pricing also dipped 1.7 percent. However, favorable pricing in oil and gas, aviation and transportation by 1.7 percent, 2.3 percent and 0.6 percent respectively offset these weaknesses to post an overall growth of 0.1 percent.

In comparison, the second quarter recorded an overall growth of 1.2 percent in pricing of the orders. Except healthcare, the company generated favorable pricing in the second quarter. The healthcare sector suffered a 1.5 percent fall in the orders pricing in Q2 and this has now widened to 1.7% in Q3.

The trend is likely to percolate into the fourth quarter too if the comments of its chairman and CEO Jeff Immelt are interpreted. During the conference call, JP Morgan's Steva Tusa sought clarifications about the pricing and the orders. The CEO commented that year-to-date order pricing is up 0.8 percent until the third quarter and will close the year either on a flat or slightly positive. It is quite clear that order pricing pressure will likely be witnessed in the fourth quarter too.

Meanwhile, S&P Capital IQ analyst Richard Tortoriello has reduced his EPS estimation on GE by 15 cents to $1.40 blaming the slowing order growth. The analyst move came on the back of the company reporting operating EPS of 33 cents, which was 9 cents below his prediction.

Aside from this, GE also trimmed its revenue forecast for the year amidst weak industrial equipment orders. Currently, the company is targeting 3 percent revenue growth compared to 5 percent growth guided earlier. Only three weeks back, the company backed its revenue forecast. The company blamed this on ongoing efforts to make its finance unit a smaller one.

For the next year too, S&P Capital IQ analyst has cut his EPS estimation by 10 cents to $1.70. However, the analyst maintained his 12-month price target of $24 as he sees the company benefiting from long-cycle industrial equipment demand and improving real estate valuations. Richard Tortoriello also cut down his rating on GE shares to Hold from Buy.

The stock closed Friday's regular trading slightly below the 52-day moving average of $22.24, but above the 200-day moving average of $20.41. Given the situation, the stock will find it tough to post any significant uptick in price movement in the near term.

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.