GE recently announced its fourth-quarter adjusted earnings per share (EPS) of $1.03 from sales of $18.5 billion. While Wall Street had expected EPS of around 90 cents and sales of $17.2 billion, GE managed to outperform these estimates. It is worth noting that these results still include the performance of GE Healthcare Technologies, which was separated from the company at the beginning of 2023.
Overall, GE's performance looks promising. Orders reached an impressive $21.7 billion, surpassing revenue figures. Additionally, profit at GE Aerospace showed positive growth, and the loss at GE Vernova, the power-generation business, narrowed. Full-year free cash flow amounted to $5.2 billion, meeting Wall Street's expectations.
However, these positive results did not translate into immediate market success, as the stock experienced a decline of about 6.5% in premarket trading. On the other hand, S&P 500 and Nasdaq Composite futures remained relatively stable.
The key factor that affected investor confidence was the guidance provided by GE's management. Although it wasn't entirely unexpected, it created confusion among investors. GE is currently in the process of splitting into two separate companies in the first half of this year: GE Vernova and GE Aerospace.
This split is expected to happen early in the second quarter, making this quarterly report potentially the last earnings report for GE as a consolidated company. It's important to note that GE Healthcare Technologies was already spun out in early 2023.
For the first quarter, GE provided guidance for sales and earnings as a combined company, including Vernova and Aerospace. The company expects an EPS range of 60 to 65 cents, along with "high single-digit revenue growth." However, Wall Street analysts project an EPS of 70 cents and sales growth of approximately 6%.
While sales guidance appears solid, the EPS guidance falls below Wall Street estimates. Nevertheless, it is crucial to remember that the first quarter is typically the slowest business quarter of the year.
In summary, GE's recent results are impressive, but the pending corporate breakup has created uncertainty among investors. The guidance provided by management aligns with expectations but may be difficult to interpret. As GE moves towards its division into two separate entities, it remains to be seen how this transformation will ultimately impact the company's performance. GE's Better-Than-Expected Earnings and Cash Flow Guidance for 2023
General Electric (GE) has reported adjusted earnings per share (EPS) of $2.81 for 2023, surpassing the company's initial guidance of around $2.60. This positive result is indicative of GE's conservative forecasting approach as its EPS guidance at the start of the year was only about $1.80.
In terms of free cash flow projections, GE has provided separate forecasts for its two divisions: Vernova and GE Aerospace. Vernova is expected to generate approximately $900 million in free cash flow, while GE Aerospace is expected to exceed $5 billion. However, it's important to note that dual companies like GE always face additional cost challenges compared to single entities, which could amount to an estimated $800 million annually based on GE's news release. Further details regarding these cost headwinds will be revealed during investor days held by both GE Aerospace and GE Vernova in early March.
Despite meeting expectations, Wall Street analysts had anticipated even better results from GE. Jefferies analyst Sheila Kahyaoglu, in a preview report, had predicted a "beat and raise" type quarter. While the company delivered a "beat," it fell short of the expected "raise."
Kahyaoglu rates GE shares as a Buy and has set a price target of $150. Overall, 63% of analysts covering GE maintain a Buy rating, exceeding the average Buy-rating ratio of stocks in the S&P 500, which stands at approximately 55%. The consensus analyst price target for GE is $144 per share.
It is worth noting that these target prices reflect the combined value of the company. Moving forward, investors and analysts will need to assess the individual worth of each segment within GE in the coming weeks.
As of midday trading on Monday, GE shares had posted a remarkable 64% increase over the past 12 months. In comparison, the S&P 500 and Nasdaq experienced gains of 21% and 36%, respectively.