Culp On GE's 2020 Outlook: 'Game On'

|
About: General Electric Company (GE), Includes: RWCD, RWDC
by: Tom Lydon
Summary

Shares of General Electric rose 4.1 percent to lead the top gainers in the S&P 500 on Thursday morning as CEO Larry Culp assured investors of the company's rebound next year with two words: "game on."

"GE's challenges in 2019 are complex but clear. We are facing them head on as we execute on our strategic priorities to improve our financial position and strengthen our businesses," said CEO Larry Culp.

GE is forecasting 2019 earnings to fall within the range of 50 to 60 cents per share, which falls short of Wall Street estimates of 70 cents a share.

Shares of General Electric (NYSE:GE) rose 4.1 percent to lead the top gainers in the S&P 500 on Thursday morning as CEO Larry Culp assured investors of the company's rebound next year with two words: "game on."

The power business of GE succumbed to negative cash flow to the tune of $2.7 billion in 2018, and Culp warned that 2019 will not be much better - in fact, "it will be worse."

"GE's challenges in 2019 are complex but clear. We are facing them head on as we execute on our strategic priorities to improve our financial position and strengthen our businesses," said CEO Larry Culp. "We have work to do in 2019, but we expect 2020 and 2021 performance to be significantly better with positive Industrial free cash flow as headwinds diminish and our operational improvements yield financial results."

"We will continue to take thoughtful actions to reduce downside risk and increase upside optionality to create long-term value for our shareholders," Culp added.

GE is forecasting 2019 earnings to fall within the range of 50 to 60 cents per share, which falls short of Wall Street estimates of 70 cents a share. Furthermore, adjusted industrial free cash flow burn could reach the $2 billion mark, but positive flows are expected for 2020.

Last year, shares of GE took a hit when a turbine issue was purportedly discovered by one of its customers, energy company Exelon (NYSE:EXC), citing an "oxidation issue" with the turbine's fan blades at two plants located in Texas. As a result of the issue, the operation life of the turbines were compromised, forcing a shutdown of the plants, which apparently is not the first time this occurrence has taken place.

GE has experienced an unceremonious fall from grace since its days when its market value was close to $600 billion in August 2000. Since then, its value has nosedived, particularly after the financial crisis in 2009, but has come back to as much as $300 billion by December 2015.

Since then, however, GE is struggling to recapture investor confidence since January 2017 when its shares were trading at about $31 per share.

"Simply put, we have too much debt and we need to reduce it thoughtfully and soon," Culp said earlier this year. "Once we put our balance sheet in a healthier place, we'll be in a better position to play offense across all our businesses."

For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEARCA:RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but also from their outperformance compared to defensive sectors.

Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (NYSEARCA:RWDC) provides a means to not only see defensive sectors perform well, but also a way to capitalize on their outperformance compared to cyclical sectors.

Original post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.