Économie

I’d Buy General Electric At The Right Price Too

I’d Buy General Electric At The Right Price Too

In a recent interview , Warren Buffett told CNBC’s Becky Quick that he would buy General Electric ( GE at the “right number”, which led to speculation that Berkshire Hathaway ( BRK.A ) ( BRK.B ) can currently be found to get back into a GE position. Let’s remember that it was only a few short months ago that Berkshire Disclosed that it sold a small GE position and build its stake in Synchrony Financial ( SYF ) [at 2014 spin-off from GE]. Since this announcement, GE shares are down over 20% while SYF shares are up over 30%. Source: Nasdaq Talk about great timing, right? After a rough 2017 (GE shares were down ~ 45% compared to the S & P 500 being up ~ 20%), the company’s stocked it up well in the new year. So, what should investors do now? I believe that the “right number” for this industrial conglomerate depends on many factors, including your time horizon, but, in my opinion, you will not get burned if you will not be able to use it. My 12-month Price Target Before the recent run-up for GE I am on record for saying that my 12-month target was $ 19 per share. This target still holds true today, even with shares trading below this mark ($ 18.76 as of January 12, 2018). What is it? How long does it last? It’s important to know that it’s important to know that it’s important to note that the real tests (ie, quarterly earnings reports and management commentary) are still yet to come.
Management already guides you to EPS in the range of $ 1.00- $ 1.07 for full-year 2018, so, even after the 2017 blood bath, GE shares are not as good as you would expect. GE PE Ratio (Forward) data by YCharts While I believe that Mr. Flannery low balled the 2018 guidance, which is a smart approach to the moving parts that he will have to contend with, it is still too early to say that GE is a must own at today’s price. GE is trading below the average forward P / E ratio of its peer group, in my opinion, GE’s management team has a lot to prove before the conglomerate can make the argument that it warrants a valuation that is in line with the likes of Honeywell ( HON ) 3M gold ( MMM ). So, at the end of the day, I am sticking with the 12-month price target of $ 19 for GE is there (the cash flow metrics, growing debt balance, Power struggles) that the bears will run with in 2018. GE’s 2018 stock performance will largely depend on how management is able to end up in my opinion. If successful, $ 19 per share will be your way too low of a price target is still too early to tell. But, there are some positive developments for GE in the last few months that could result in this company eventually becoming more important in the year. Positive Developments The backdrop for GE has been improved 2018 outlook in November 2017 goal I believe that the two items mentioned below have the potential to be significant tailwinds in 2018. (1) Oil Prices The rise in crude oil has resulted in a great deal of attention for GE, and rightfully so, this company is highly levered to the commodity.
Source: CNBC Remember, GE merged its oil & gas business with Baker Hughes in 2017 to create Baker Hughes, a GE Company ( BHGE ). No one really knows what will happen in 2018 or 2019, but it is hard to deny that it has been a great deal for these commodities in the new year. And, BHGE has been a direct beneficiary. BHGE Market Cap data by YCharts As shown, BHGE ‘s market cap has been increased by over 20% since late 2016 but it has not meant anything to GE shares, as the company’ s stock is down. Let’s think about this, GE still owns a stake in BHGE (62.5%) so the industrial conglomerate’s holding is now worth $ 26B, or ~ 16% of GE’s current market cap, and the recent rise has no bearing on GE’s stock price. BHGE alone is not enough to move the needle for GE, but a rising BHGE stock price will be for GE and its shareholders in 2018. There are rumors that GE may look to spin-off BHGE at some point over the next few quarters, as BHGE’s structure gives Mr. Flannery a lot of optionality, but I would not be surprised GE retained the majority stake well into the 2020’s. (2) Promising Policies The goal of the tax reform is to have a positive impact on the market, but, in my opinion, the downstream impact of this business-friendly policy will be significant. impact on GE. For example, a JPMorgan analyst predicts that the new bill will be extremely positive for the companies of the S & P 500:
“[Marko] Kolanovic, who serves as a global head of quantitative and derivative strategy, wrote in a client note. “We’re thinking about being repositioning portfolios until they see the reform passed.” JPMorgan’s breakdown of the importance of tax reform earnings growth forecast for next year. The firm projects that half of earnings upside – or roughly $ 10 a share for the S & P 500 – will be a successful GOP tax bill. ” Joe Ciolli, JPMorgan’s guru says they’re waiting for tax cuts to unleash more stock market gains , Dec. 15, 2017 The tax bill has already started to have an impact, as analysts’ estimates for 2018 have increased by 2.2% (to $ 150.12 from $ 146.83) from December 20, 2017 to January 11, 2018. Source: FactSet Full Disclosure: the 2018 bottom-up EPS is an aggregation of the median 2018 EPS estimates for all of the companies in the index. FactSet began tracking this data in 1996. Additionally, analysts are bullish on several sectors that GE operates in.
Let’s just remember that this industrial conglomerate is operating in the United States. Et un Trump infrastructure bill in 2018 would simply be icing on the cake. Risks The main risk for investing in General Electric starts with management. There is no guarantee that Mr. Flannery is a leader in the direction of a complex industrial conglomerate. Sentiment is the number one factor for GE shares in the form of a leader, at least on this type of stage. Another risk factor is the Power operating unit. 2018 or 2019. Management of the financial situation of the company. unit for the future. Bottom Line The market is flying at (or near) all-time highs and lots of stocks, including GE shares, have enjoyed a nice ride so far in 2018. I believe that there is a lot to like about 2018 and beyond, This company’s new management team has a lot of success over the next 12-18 months. Therefore, investors who think that they will not be able to pay for it (or below) in the first half of 2018. However, looking out, I believe that this conglomerate is attractively valued if you are willing (and able) to hold onto shares for at least the next three-to-five years. Investor sentiment is the main focus for the poor performance for GE shares in 2017 and I believe that the shares will rocket higher if Mr. Flannery is able to sell the market on his “plans” for this industrial conglomerate. That’s why I have a lot of things to do, and it’s going to be difficult to do (or should I say impossible?). As such, investors with a long-term perspective should be aware of the position of today’s levels because, in my opinion, GE shares have the potential to be significantly higher trading in the years ahead.
Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his / her own due diligence before making any investment decision.
If you found this article to be informative and would like to hear more about this company, or any other company that I analyze, please consider hitting the “Follow” button above. Now, consider joining the Going Long With W.G. premium service to get exclusive content and one-on-one interaction with William J. Block, President and Chief Investment Officer, W.G. Investment Research LLC. Disclosure: I am / we are long GE, BHGE, BRK.B.
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 this article.

Post Comment