The once-mighty General Electric (NYSE:GE) has fallen on such horrific times that one has to wonder whether the company and GE stock will ever look as robust they did a generation ago. And I mean, ever.
While so many other investments have fully bounced back from their novel coronavirus funk in March, GE stock has not. At $7.37 per share, it has slashed close to three quarters of its value in five years. That once fortress-like dividend? Reduced to rubble.
Yet whatever has befallen the company these last few years, there’s an interesting percolation among Wall Street analysts. At this point, a dozen call GE a buy. Yes, seven call it a hold. But no one, not a single one, has labeled it a sell.
Come again?
GE Stock and the New-Found Optimism
GE is actually overweight. And dumping stubborn negativity for solid possibility, GE clobbered analyst expectations Wednesday when it reported adjusted third-quarter earnings per share of 6 cents versus a loss of 4 cents.
Thus in four of the last five quarters, GE has beaten the street while retaining a nifty price-earnings ratio just under 19. That’s right about where most investors will want their holdings to fall, and it’s certainly more favorable than perennial favorites such as Facebook (NASDAQ:FB) at 33 or Tesla (NASDAQ:TSLA) at a death-defying 817. Price to earnings tells you how much you’ll pay in dollars to buy into a dollar of company earnings.
Thus, the analyst optimism is grounded in performance. But watch me as I steal away the punchbowl: That’s recent performance. In between all the good news, the second quarter of 2020 saw GE stock lose 15 cents per share and miss analyst expectations by 5 cents. It’s fair to ask whether this potential comeback is a transitory moment as opposed to transitional movement.
Financial Woes Remain
As recently as a month ago, GE stock held all the appeal for me of walking barefoot across a factory floor of smashed light bulbs. And over the last few years, GE has been savaged to such a degree that blowing off certain headline stories — such as the company slashing its once-legendary dividend to just a penny effective December 2018 – cannot and must not be ignored. It hasn’t boosted it since.
Meanwhile, the pension woes impacting GE stock are well documented. So are its troubles with covering long-term care insurance policies out of its insurance business unit. And the worst thing a company on the ropes needs is a highly publicized fraud allegation, which came last year.
Harry Markopolos — the whistleblower who revealed Bernie Madoff’s Ponzi scheme — released a scathing 175-page report in August 2019 that alleged financial manipulations amounting to “a bigger fraud than Enron.”
Extra Innings Needed Before Buying
If nothing else, Wednesday’s earnings beat suggests that now may be a good time to buy GE stock. It offers one more piece of compelling evidence that the company is in rebound mode. Culp for his own part is realistic: “If we were playing a little bit of baseball, I think we’re probably in the second or third inning” of the comeback, he said on Oct. 26.
Fine metaphor that this is, it depends on what kind of contest we’re talking about. Id it game four of the World Series with GE down three games to one? Or Opening Day in a brand-new season?
It may be somewhere in between. Culp is a respected CEO. But with respect to my portfolio, I don’t see GE showing enough signs of leaving its troubles behind. I’d love to see a dividend increase, resolution of the pension woes and definitive, reassuring answers to Markopolos’ allegations. Once any or all of that transpires, maybe I’ll join Team Culp and take a swing for the fences.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.