General Electric Earnings Preview: First Quarter 2009

General Electric [[GE]] is scheduled to report first quarter 2009 results before the market opens on Friday, April 17. Based on our analysis, we at are expecting GE to report inline results that meet Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $39.60 billion and EPS of $.21. This would represent a 52% increase in revenues from last year’s $13.22 billion in the same period. The current analyst consensus calls for revenues of $39.06 billion and $.21 EPS.


General Electric continues to face strong headwinds as it muddles through the perfect storm that has hit the financial services industry. The company is taking a hard look at their expense structure in the face of declining profitability. The decision to cut their quarterly dividend payment by 68% is a good example of the company’s commitment to make the decisions necessary to ride out this economic storm. The dividend reduction alone is expected to save the firm almost $9 billion. If the company’s performance continues to decline, there is still the option of eliminating the remaining dividend which would generate another $4.2 billion in savings.


Over the long term, General Electric will emerge a much stronger company. Investors who bought the stock at $6 per share last month are in position to profit handsomely. While we doubt that GE stock will return to those low levels, certainly below $8 per share the stock looks attractive.


Share Performance

General Electric’s shares are down 30% since the beginning of the year, although they have rallied 70% since closing at $6.66 on March 5, 2009. In 2008, GE’s shares plummeted over 56% as the stock badly underperformed the 34% drop in the Dow Jones index.



Shares are now trading at 12x consensus 2010 EPS estimates. This is roughly inline with the relative valuations of their peer group. General Electric faces some very difficult short-term challenges, but we still believe in the long-term potential of this company and would recommend buying the stock if it falls below $8.


Recommendation: Hold with a $12 price target.


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