General Electric Co. (GE) - Get Report shares rebounded on Tuesday after a rough week heading into its fourth-quarter earnings announcement, and analysts anticipate that the industrial conglomerate may cut its 2018 guidance when it reports financial results on Wednesday, Jan. 24.
GE's stock was rocked last week after the Boston-based company said it would book a $6.2 billion charge to its fourth-quarter earnings, citing weakness in its North American Life & Health insurance portfolio. The company also said that its financing arm GE Capital would make $15 billion in payments over the next seven years to shore up NALH's statutory reserves, starting with around $3 billion in the first quarter of this year, and approximately $2 billion annually from 2019 to 2024. GE Capital will also suspend its dividend to GE "for the foreseeable future," the company said.
The charge and payments come as a result of GE's comprehensive review of its insurance reserves, and Chief Executive John Flannery noted that he is reviewing the other portfolio of the business, even hinting at further restructuring efforts.
While Wall Street analysts are hoping to hear additional details about the potential change in corporate structure, here's a look at what else they are expecting from GE:
Bank of America Merrill Lynch: NEUTRAL
Bank of America Merrill Lynch analysts, including Andrew Obin, don't see any positive earnings revisions in sight.
"We now believe that GE is likely to cut its 2018 outlook when it reports fourth-quarter earnings on Jan. 24, as we estimate that Power was the key driver of its lower fourth-quarter outlook," the analysts wrote in a Jan. 22 research note.
The team of analysts lowered its estimates for 2018 from $1.00 to 92 cents, as well as its 2019 forecast from $1.08 to $1.02.
The firm also lowered its price target on the stock from $22 to $17 to reflect "lower earnings estimates, zero equity value assigned to GE Capital, and lower value assigned to GE Digital initiatives, as we don't see the market paying up for this optionality given the lack of visibility elsewhere at GE."
J. P. Morgan: UNDERWEIGHT
For the fourth quarter, J.P. Morgan expects earnings of 28 cents per share and anticipates free cash flow of $4.2 billion to close out 2017. GE expects full-year EPS at the low end of prior guidance of $1.05 to $1.10.
Of the company's core business units, J.P. Morgan sees profits of $1.4 billion for Power, assuming organic declines of about 12%. Aviation, meanwhile, "likely sees moderation in profit growth," with an overall profit of $1.64 billion. J.P. Morgan analyst Stephen Tusa also said in a Jan. 22 research note that "trends in Healthcare are steady and execution has been generally solid [year-to-date]," and predicts profits of $1.1 billion.
For Baker Hughes, a GE company (BHGE) - Get Report , J.P. Morgan anticipates sales down 6% year-over-year with "absolute adjusted GE reported profits of approximately $193 million versus adjusted profits of $231 million in the third quarter."
Aside from the quarterly results, Tusa is looking for additional comments from Flannery on the potential change in corporate structure and any updates to 2018 guidance.
William Blair: OUTPERFORM
Even though the stock plummeted after GE's investor update, William Blair analysts, including Nicholas Heymann, maintained their Outperform rating, believing that GE's share price reached a bottom.
"While GE has underperformed the S&P 500 by 64% in 2017, we believe the company's structural reset for 2018 and beyond offers a line of sight to rejuvenated cash flow generation and improving ROIC over the rest of this decade," the analyst team wrote in a Jan. 17 research note. "Furthermore, we believe the company's intention to exit $20 billion of assets over the next 12-24 months is likely to materially enhance the company's financial flexibility and thus provide an opportunity for better-than-expected profitability off a likely still smaller overall revenue base."
In the immediate near term, meanwhile, the William Blair analysts expect the stock to "normalize" in the range of $20 to $22 per share.
The Technical Take
A technical look at GE stock suggests the selloff has further to go.
"The problem for GE bulls is that shares could have even further to fall from here after crossing a key level last week," wrote TheStreet contributor Jonas Elmerraji, a senior market analyst at Agora Financial in Baltimore, Md.
"Every test of the trendline resistance level that's defined the top of the trading range for GE has been followed up with a strong selloff lower," Elmerraji continued.
Unless GE can break away from the downtrend, shares are "statistically predisposed to keep on underperforming," said Elmerraji.
Shares of GE rose by 4.5% on higher-than-average trading volume to close at $16.90 on Tuesday. There are six Buys, 11 Holds and four Sells on the stock, according to Bloomberg data.
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