GE stock: it may take a while for it to increase again
General Electric (NYSE:GE) the stock has risen about 90% over the past year, but has been stagnating around an adjusted amount of $ 100 per share since the spring. After fully factoring in expected earnings growth in 2022, investors were reluctant to bid much higher on the industrial giant’s shares.
Last month, I said investors should wait for prices to drop before buying because of the risk of below-expectations earnings. But after looking at the situation from another perspective, two more catalysts could help prevent GE shares from falling below $ 100 a share.
The first is that of GE while waiting for the sale of its aircraft rental unit, a move that could help unlock shareholder value. Second, a possible increase in federal government spending could also provide an indirect boost to GE stocks.
Now don’t take that to mean that I think stocks will show up in the coming months. Instead, it’s a situation where strengths and weaknesses cancel out. There is enough of it to keep GE shares stable around $ 100 to $ 105 per share. Not enough to send it higher in the short term.
GE Stock is already trading on next year’s results
The key issue with General Electric today is that future earnings growth is already factored into its valuation. The consensus estimate is that the company will generate earnings of around $ 4.33 per share in 2022.
At today’s prices, that gives GE stock a futures price / earnings (P / E) ratio of around 24.5. This corresponds to the evaluation of a similar name, Honeywell (NASDAQ:HON), which trades at 23.9 futures earnings. But other diversified industrial companies are trading at even lower valuations, such as 3M (NYSE:MMM), which has a forward P / E ratio of 16.9.
It goes without saying that General Electric needs its revenues to meet or exceed these estimates. If the company disappoints, GE shares could suffer.
In the past, I have wondered if General Electric’s earnings will exceed $ 4 per share next year, mainly due to the risk of inflationary pressures. Inflation that ends up being more than âtransientâ could affect the performance of all of its business units.
A repeat of last year’s Covid-19 lockdowns, due to the Delta variant, is also a big risk. It would be a major setback for the takeover of the company’s flagship aeronautical unit.
That said, there are a few positives to counter those negatives. They may not be enough to drive shares up soon, but they could help keep GE shares from falling below $ 100 per share.
Lots of play to keep GE’s stock stable
As I mentioned above, there are two positive catalysts on the horizon for General Electric.
The first catalyst is the pending sale of its aircraft rental unit. As Barron reported on August 27, Barclays analyst Julian Mitchell sees this as something that could result in an âupward valuationâ. According to Mitchell, once GE sells this unit, investors may be more willing to value the company at a higher multiple in line with its peers in the aviation, healthcare and renewable energy sectors.
Certainly, it is doubtful that this will happen. Given Wall Street’s preference for pure play, a diversified company like General Electric will likely struggle to achieve a price comparable to its valuation in sum.
Fortunately, the second catalyst seems more likely to work.
As Larry Ramer, another InvestorPlace contributor, wrote on September 3, the infrastructure bill and proposed federal budget could provide an indirect boost to GE’s electricity and renewable energy segments. . Additionally, the desire of the Biden administration and Congressional Democrats to increase government spending on health care may benefit the company’s health care unit.
Force in these areas could counter other headwinds with the company’s aviation unit. This, in turn, could ensure that General Electric’s turnaround continues, that its profits exceed $ 4 per share next year, and that the current valuation of the company remains intact.
The result on GE’s stock
Despite my earlier pessimism, there may be enough things at stake to ensure that GE’s stock stays at its current price levels. But as for his next move higher, it may take a while.
The stocks are fully valued based on the 2022 projections. Profits will need to meet or exceed the high of analysts’ estimates, currently at $ 4.88 per share, for the stock to see another immediate boost.
In the long run, GE’s inventory may continue to rise. But in the short term, expect stocks to hold steady at or around today’s prices.
At the date of publication, Thomas Niel had (directly or indirectly) no position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Thomas Niel, contributor for InvestorPlace.com, has been writing individual equity analysis for online publications since 2016.