General Electric (NYSE: GE) is scheduled to report its Q4 2021 results on Tuesday, January 25. We expect GE stock to see little movement due to mixed Q4 with revenues beating consensus estimates, but earnings falling short. The overall economic growth likely bolstered the revenue growth in Q4, but the spread of Omicron and continued supply chain issues may have adversely impacted the margin growth.
1) Revenues expected to be above the consensus estimates:
*Trefis estimates GE’s Q4 2021 revenues to be around $23.2 billion, reflecting a 6% y-o-y growth, and it is 7% above the $21.7 billion consensus estimate.
*While GE’s aviation business has been a drag on its revenue growth since the beginning of the pandemic, it has started to see some growth over the recent quarters. This trend likely continued in Q4 as well, with the economies opening up gradually, and airplane manufacturers planning to increase production. Aviation revenues were up 10% to $5.4 billion in Q3, though they are still down 6% for the nine months ending September 2021.
*The company’s healthcare business has also seen a rise in demand of late, with a rebound in total procedures volume, a trend expected to continue going forward. Furthermore, the company’s recent acquisition of BK Medical strengthens the ultrasound portfolio of its healthcare business over the coming years. However, General Electric’s healthcare revenues were still down 5% y-o-y to $4.3 billion in Q3 and they were down 1% to $13.1 billion for the nine months ending September 2021.
*With the economic growth picking up pace, GE’s other businesses, including power and renewable energy, are expected to see a rebound in 2022. That said, General Electric expects the overall renewable revenue to remain flat y-o-y for the full year of 2021.
2) EPS likely to be below the consensus estimates:
*GE’s Q4 2021 adjusted earnings per share is expected to be $0.78 per Trefis analysis, compared to the $0.87 consensus estimate.
*GE’s adjusted net income of $0.6 billion in Q3 2021 reflected a large 51% rise compared to the $0.4 billion figure seen in the prior-year quarter.
*The company expects margin expansion for its aviation business in Q4 but the spread of Omicron, inflationary headwinds, and supply chain issues, likely weighed on the overall earnings growth in Q4, especially for its healthcare and renewables segments, which has seen pressure on margins in the recent past.
3) Stock price estimate above the current market price
*Going by our General Electric’s Valuation, with an EPS estimate of around $1.99 and a P/E multiple of around 59x in 2021, this translates into a price of $118, which is more than 15% above the current market price of around $102.
*Other than a Covid-19 recovery play, GE stock also stands to benefit from its focus on reducing its debt. GE’s current debt of around $63 billion compares with a large $110 billion figure seen in 2018. The company has sold several of its assets to reduce its debt, and it continues to be on that path.
General Electric Short (Sell)
Enter at: 92.51