General Electric Earnings Preview: Second Quarter 2009

General Electric [[GE]] is scheduled to report their second quarter 2009 results before the market opens on Friday, July 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 $42.93 billion and EPS of $.23. This would represent an 8% decline in revenues from last year’s $46.89 billion in the same period. The current analyst consensus estimates calls for revenues of $42.31 billion and EPS of $.23.


Despite a weak economy and a struggling Capital Finance division, General Electric continues to earn billions each quarter. Management has already acted aggressively to reduce the company’s cost structure and we believe that there is capacity to make further cuts if necessary.


On the downside, Wall Street is expecting GE’s earnings to decline further in 2010. While the declines are fairly moderate, investors may grow impatient with GE and look to other Dow stocks like Coca Cola [[KO]] or Johnson & Johnson [[JNJ]] that should be able to grow their earnings in 2010 and offer similar dividend yields.


Share Performance

Since the beginning of the year, General Electric’s shares are down 34%, but have rallied 61% since closing at $6.66 on March 5, 2009. In 2008, GE’s shares fell 56% and underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 12x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. General Electric continues to be viewed as a safe, large cap stock. However, we would expect the stock to underperform the market over the next 12 months and feel that there are more compelling investment options available.


Recommendation: Hold with a $12 price target.


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