General Electric: You Are On A Blind Date

| About: General Electric (GE)


Time to fall in love with GE?


Ever married?

You are on a blind date.

There are many ways to approach General Electric (NYSE: GE) but the only one is to remember that you are on a blind date.

Revenues forecasts, profitability targets, projections and price targets from analysts have all changed so swiftly in the past nine months that current shareholders are lucky to have recorded only a 25% paper loss year to date.

This is a topic that goes to the heart of what managing expectations means in finance, and why execution is a completely different matter. And, quite simply, GE has not had the time to reach that point during the year in which earnings, and subsequently core operating cash flows, rise at a much faster clip than in the first half.

Working capital management has something to do with that, and so does seasonality, as well as the order book mix.


Whatever the reason, GE was not given the time to show the improvement, which is a key value-driver for the investor community. Rather, it was fairly punished by traders and investors who simply have had enough of a number of things that – just as in any wrong relationship – have to make sense because the partner says so.

While I write this article the shares of GE are trading in pre-market close to a multi-year low of $23, which is where I said it would be fair value in my previous coverage, after talking to my dad recently.

No kidding: GE has been a very hard nut to crack for some time, and I have no time to waste. In my busy daily schedule, I have to figure out whether current and projected trading multiples mean anything at this point in time, not only for GE.

In that regard, while there's talk that a break-up is a possible option, its current valuation is still too inflated for anybody to assume that the spin-off, say, of its flagship aviation business would command a premium against its implied equity value on a standalone basis, regardless of the structure of the deal.

"Jamie who?"

"Jamie Miller!" I told a London-based market maker who has joyfully traded General Electric in the past year or so, unaware a new chief financial officer was recently appointed.

Meanwhile, technical analysis is good only in hindsight, and some charts I have consulted also point to two directions -- "up" is often just as good as "down", in terms of probability, my dad often says.

In the back of my head, I decide not to ignore that the current stock market is one where monetary policy risk heightens what the analysts call, in jargon, "upside risk".

After all, news that General Electric has appointed Jamie Miller as chief financial officer did not surprise me, and means continuity in the way GE affairs are managed under the stewardship of John Flannery, a GE veteran.

"The lesser evil immediately springs to mind," my banking source concluded.

On the day another bearish note from JP Morgan hits the wires, I have asked my dad what he thought was the inherent risk stemming from betting on a rapid surge of the stock.

"$15 is plausible but unlikely, while $19 is another possibility, by the end of Q1. But you know, I am retired. What does your model say?"

"I am on a blind date now," I replied.

And for this reason, I am out.

Disclosure: I/we 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.

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