General Electric Co

GE Details

General Electric Co (NYSE: GE) is a high-tech industrial company. It operates globally through its four industrial segments viz; Aviation, Healthcare, Renewable Energy, and Power. The company also  has a financial services segment, Capital.

Robust Performance in Q2FY21 (For the Period Ended 30 June 2021)

• The company has reported a solid overall performance in Q2FY21 and orders as well as revenue returned to growth.
• Total revenues in GAAP terms increased by 9% to $18.3 billion whereby Industrial organic revenues rose 7% to $16.9 billion.
• Overall orders improved significantly by 33% to $18.3 billion whereby organic orders increased by 30%.
• Adjusted Industrial profit margin of the company increased by 940bps to 5.3%, while organically, the margin improved by 1,000 bps.

Key Data (Source: Company Report)

Recent Updates

• Bagged Contract: Its renewable energy’s Grid Solutions business, on 14 September 2021, has bagged a contract from the Norwegian utility Elvia. The contract entails providing an SF6 free substation in Heggedal that includes its industry-leading g³ The project includes the design as well as engineering, delivery, and setting up of six bays of its F-35-41g 145 kV g³ insulated switchgear and related electrical balance of the plant.
• Approved Dividend: The board of directors of the company, on 10 September 2021, declared a dividend of $0.08 per share on its outstanding common shares. The dividend will be paid on 25 October 2021.
• Received Approval: GE Renewable Energy, on 13 September 2021, received the official planning approval from the Local Planning Authorities with respect to its Teesside offshore wind blade manufacturing plant. The construction of the plant is expected to commence later in 2021 post the completion of all contractual documents.

Key Risks

The company’s operations are exposed to the risk of changes in macroeconomic and market conditions and market volatility. Further, it is prone to risks of changes in trade  and tariffs policy, as well as regulation associated with climate change, and tax law that could impact its business. The global COVID-19 pandemic is likely to have a significant adverse impact on its operations and financial performance. Further, it operates in a highly regulatory and competitive environment.

Outlook

The company has raised its guidance for Industrial free cash flow for 2021  which is expected to come in the range of  $3.5 billion – $5.0 billion against its earlier predicted range of $2.5 billion – $4.5 billion.  However, it has maintained its outlook for its Industrial revenues that are expected to grow organically in the low-single-digit range whereas its  adjusted Industrial profit margin is estimated to increase by 250-plus basis points organically. Further, the company has retained its guidance on its adjusted earnings per share for 2021 between $0.15 to $0.25.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Stock Recommendation

The stock declined by ~4.46% in 3 months. It has made a 52-week low and high of $48.4 and $115.32, respectively.

The stock has been valued using EV/EBITDA multiple-based illustrative relative valuation and the target price so arrived reflects a  fall of low double-digit (in % terms). A slight discount has been applied to EV/EBITDA Multiple (NTM) (Peer Median) considering its negative net margin at 3.1% compared to the Industry Median at 6.0% along with its higher debt to equity ratio that stood at 1.90x in Q2FY21 compared to the Industry Median at 1.13x and the longer cash conversion cycle at 115.0 Days in Q2FY21 versus the Industry Median at 89.6 days.

Considering the aforementioned factors and the associated business risks, we advise the investors to book profit on the stock. Thus, we give a “Sell” rating on the stock at the current market price of $106.94 per share (US Time: 10:08 AM) on 30th September 2021.

Technical Overview:

Chart:

Source: REFINITIV, Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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