General Electric’s (NYSE:GE) impressive turnaround continues. GE stock recently hit the $12 mark. It subsequently fell below that level. but it’s still near its 52-week high. Admittedly, some of the gains of GE stock are likely due to the surge of the overall market.
However, General Electric deserves plenty of credit for its performance which has helped boost GE stock. CEO Larry Culp has set an excellent tone and helped convince the market that the company is through the worst of the storm.
But a longtime GE skeptic, JP Morgan analyst Stephen Tusa, continues to criticize the company. He reiterated his $5 price target on GE stock recently and expressed pessimism about the company’s upcoming quarterly earnings report.
Is General Electric still a good stock to hold heading into its upcoming earnings report? Or is this a good time to lock in some profits with the stock near its 52-week high?
GE’s Q4 Results
On Jan. 29, General Electric is expected to announce its Q4 and full-year results. Analysts have become increasingly optimistic about the company’s Q4 earnings. Earlier this week, for example, Deutsche Bank analyst Nicole DeBlase named the stock a “Catalyst Call” pick due to her belief that its earnings will come in above the average estimate.
GE’s businesses have been generally trending up recently. On top of that, recent macroeconomic improvements and the heightened tensions in the Middle East could lead to more robust demand for the company’s products going forward. That, in turn, could enable GE to raise its guidance again.
How Will Boeing’s Max Impact GE Aviation?
In general, General Electric’s aviation business has been one of its shining stars. While a number of its other businesses, such as Power, have struggled, GE has enjoyed strong tailwinds from its airplane engine business. Low oil prices have helped enable airlines to generate robust cash flows, resulting in strong earnings growth for GE’s aviation unit.
Unfortunately, the unit may hit some turbulence. That’s because one of its joint ventures, CFM International, is the supplier of engines for Boeing’s (NYSE:BA) 737 Max aircraft. After multiple Max planes crashes, they have been grounded around the world. At first, it appeared that they would fly passengers again relatively quickly, but the timeline for their return continues to slip.
Earlier this month, a key 737 supplier, Spirit Aerosystems (NYSE:SPR) announced massive layoffs due to the Max’s continued problems. Boeing has lost orders over the past year, as airlines increasingly lodge more orders with Airbus (OTC:EADSY). GE’s earnings report should show how much these troubles have hurt GE Aviation.
Tusa Still Isn’t Giving Up
Tusa, the longtime GE stock bear, also continues to be skeptical of GE’s turnaround. He issued his most recent comments on GE stock last week. In the note, he blasted GE’s defense division, claiming that the unit’s growth is trending below guidance and is far below that of its peers. He also questioned GE’s exposure to Boeing, writing:
“Bottom line, we struggle to find support for [GE’s] guidance that calls for such growth, especially in the context of flat revenue performance here since 2009, which ranks as worst in class versus the major primes and other tiered suppliers […] Further, we see limited supporting evidence for what is consistently highlighted by management as a key support for forward growth at GE Aviation, the most narrowly exposed supplier in the market, heavily weighted to commercial engines, and specifically, Boeing.“
It’s rare for professional Wall Street analysts to remain aggressively bearish on a company for this long. It’s generally bad business for analysts to be extremely bearish about a huge company like GE, so analysts only adopt such a position if they’re highly confident about it. Tusa’s willingness to stick to his increasingly contrarian $5 price target has given bears ammunition to argue that General Electric stock will crash again. Pay close attention to how GE’s defense and aviation businesses did last quarter; if they top expectations, Tusa may finally change his position on GE stock.
The Bottom Line on GE Stock
Sometimes the best move is to take profits when the last critic of a stock finally throws in the towel. As long as Tusa is still slamming General Electric and maintaining his unusually low price target on the shares, sentiment towards the shares haven’t become totally bullish yet. If General Electric delivers impressive earnings and Tusa finally upgrades the stock, there’s a good chance that the rebound of GE stock will be over.
For now, however, riding General Electric stock higher still makes sense. The company can meet Q4 earnings expectations. The economy is reasonably strong. Fed policy is loose. Thus, there should be more capital available to drive more capital expenditures by many companies, resulting in more orders for GE.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.