Contrarian Value Ideas

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>>> GE: You Get What You Deserve?



By Ben Levisohn

Nov. 22, 2017



https://finance.yahoo.com/m/f17ddcc9-2659-3632-9c62-5d5eb1ac6423/ge%3A-you-get-what-you-deserve%3F.html



It's been a banner year for some industrial stocks. Boeing (BA) has soared more than 70% in 2017, while Caterpillar (CAT) has climbed almost 50%, and Deere (DE), which released top-notch earnings today, has jumped 40%. And even Honeywell International (HON) is doing just fine: It's gained 30% so far this year. And then there's General Electric (GE).

Yes, we all know that GE's in bad shape--it's 43% drop this year makes that obvious--but the question is how bad. In a note released yesterday, Deutsche Bank's John Inch contends it's bad enough that GE deserves to trade at a big discount:

Overall, we believe GE should trade at a valuation discount given still aggressive accounting, cash flow pressures including potential negative US tax reform impact, rising debt pressures including more debt downgrades ahead, “black box” low taxes, future divestiture dilution, the potential for additional lawsuits and an overall profit outlook that appears to be “L” shaped (flattish). Potential future improvement from Power in 2022/beyond could be offset with declines in Healthcare and Aviation that are currently at all-time sales and profit highs. Future Oil & Gas improvement may not matter much as GE has signaled it likely intends to monetize its investment in Baker Hughes (BHGE) in roughly 1.5 years (GE just purchased 62.5% of Baker in July 2017).

Inch also cut his price target on General Electric to $15 from $18.

Shares of General Electric have gained 1.5% to $18.09 at 10:11 a.m. today, while Boeing has fallen 0.7% to $265.30, Deere has climbed 3.3% to $143.87, Honeywell International has dipped 0.2% to $149.05, and Baker Hughes has risen 0.8% to $30.91. The Industrial Select Sector SPDR ETF (XLI) has ticked up 0.1% to $71.41.

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