General Electric (GE) Stock’s Decade of Pain May Be Over After Encouraging Q3 Earnings

Kiril Nikolaev @kirilnikk123
October 31, 2019 13:00 UTC
  • General Electric posted upbeat Q3 earnings.
  • Free cash flow, an efficiency indicator, amounted to $650 million.
  • Improving fundamentals suggest that the stock may have found a bottom.

General Electric (NYSE:GE) is surging. The company is slowly becoming an example of how to turn a struggling industrial giant into a powerhouse. GE’s resurgence can be largely attributed to the man at the top, Larry Culp.

Shares of the industrial conglomerate gapped up on Wednesday and climbed as high as $10.37. The stock closed at $10.11 for gains of nearly 12%. GE has been in a brutal downtrend since it posted an all-time high of $58.15 in August 2000. At its current price, the equity is down over 82%.

The good news is that better days appear to be ahead. The company beat third-quarter estimates while also improving its cash flow forecast. In addition, technical signals indicate that the stock may have carved a bottom.

Q3 Performance Indicates a Company Righting the Ship

GE’s struggles are well-documented. What was once the bellwether of the Dow Jones has fallen from grace. The 2008 financial crisis nearly doomed the iconic American company. They had to rely on billionaire Warren Buffett to keep operations stable.

From that point, the company had to restructure, downsize, and even slash dividends to weather the storm. The entrance of CEO Larry Culp in 2018 may have signaled the beginning of the end of GE’s struggles. The new chief executive further reduced dividends and restructured the company’s power segment while selling business segments such as the BioPharma unit.

Culp’s moves appear to be paying off. GE reported third-quarter earnings that surpassed consensus estimates. The company printed and earnings per share of 15 cents as opposed to analyst expectations of 11 cents a share. In addition, GE posted revenue of $23.36 billion versus analyst estimates of $22.93.

The most encouraging news from the Q3 earnings report comes in the form of its industrial free cash flow (FCF). The FCF is a profitability indicator as it shows the amount of money left after the company accounts for capital spending and operational expenses. GE’s Q3 FCF stood at $650 million. More importantly, the industrial conglomerate raised its 2019 FCF guidance to the range between flat and $2 billion from negative and $1 billion.

These developments tell us that GE is finally turning things around after a decade of pain. It also helps that technical factors indicate that the bottom may be in.

GE Stock May Be on the Cusp of a Bullish Breakout

After almost two decades of bearish price action, it appears that GE may be leaving bear territory. We have this view because the stock appears to have found a durable support level at $8.00. The monthly chart tells us that the security may be painting a double bottom pattern.

General Electric refusing to give up its long-term support. | Source: TradingView

The reversal pattern aligns with advancing fundamentals. As revenue and free cash flow continue to improve, it is possible for GE to start a bull run. Christian Fromhertz, chief executive of Tribeca Trade Group (TTG), believes that the stock can pull off a rally once it takes out resistance of $10.60.

A trend trader believes that GE will begin its uptrend above $10.60 | Source: Twitter

GE appears to be on the up and up. It’s amazing what a company can achieve with the right man at the helm.

Disclaimer: The above should not be considered trading advice from CCN. The writer does not own General Electric stock.

This article was edited by Sam Bourgi.

Last modified: October 31, 2019 16:30 UTC

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Kiril Nikolaev @kirilnikk123

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has a bachelor's degree with a specialty in finance and lives in Canada. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. He owns Bitcoin, Ethereum, and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading. Follow the author on Twitter @kirilnikk kirilnikk123@gmail.com