Should You Buy GE Stock Post The Q1 Earnings Beat?

  • GE reported strong numbers on industrial operations.
  • GE continues to divest financial assets and says it is no longer too big to fail.
  • You buy GE stock for the dividend, not for capital gains.

General Electric Company (NYSE:GE) beat estimates on its first-quarter earnings, but the impact on the stock was muted as investors were expecting good news.

Operating earnings came in at 21 cents/share, total industrial earnings of $2.9 billion up 5% from a year ago, beating street estimates by 2 cents/share, on revenue of $27.8 billion.

Taking apart the numbers, however, the company actually reported a loss of $100 million due to the strong dollar. Earnings from continuing operations, including finance, came in at $200 million, 2 cents per share, but the company’s release emphasized that industrial margins were 12.8%, 30 basis points higher than before, and the work backlog now totals $316 billion, up 18% from the $268 billion of a year ago. 

The company also reaffirmed its year-long earnings guidance for earnings of $1.45-1.55/share. If that is achieved it would mean a Price/Earnings multiple of about 16 by the end of the year, assuming the price of the stock stays where it is. This would be close to the market average.

The company also expects organic revenue to grow 2-4% for the full year, although some analysts believe that may be hard to achieve if orders for power equipment remain weak. GE expects orders to pick up during the second half of the year.

The result, in thin overnight trading, was a loss of 34 cents per share, and the company opened for trading on April 22 at about $30.60/share. This was a better overnight result than other big stocks such as Alphabet Inc-A (NASDAQ:GOOGL), Starbucks (NASDAQ:SBUX) and Microsoft (NASDAQ:MSFT), which all reported disappointing results.

During the quarter GE accelerated its restructuring, saying it has disposed off $146 billion of assets, and as a result, it applied to no longer be designated as a “Systemically Important Financial Institution” or “too big to fail.” The company said its plan to dispose of financial assets would deliver $18 billion in dividends to the GE balance sheet through 2016.

The reason to own GE stock remains what it has always been, its dividend of 23 cents per share, which is usually well-protected by $493 billion in assets and a lowering debt load. Progress on meeting CEO Jeff Immelt’s goals can be seen in the cash flow numbers, reported as Cash Flow from Operating Activities, or CFOA. This came in at $7.9 billion for the quarter, up from $6 billion in the same quarter a year ago.

Buy GE stock today and you should get a yield of 3% on your money, which is much higher than you would get from a government bond, with a promise of rising dividends in the future from industrial operations. It is a good, conservative stock in a volatile market.

Dana Blankenhorn Dana Blankenhorn   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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