General Electric Company (NYSE:GE) is one of the largest and oldest companies in the United States. That didn’t stop the company’s share prices from tumbling in the wake of a global slowdown triggered by COVID-19.
However, its market capitalization steadily rose since the beginning of November, leading some analysts to wonder is GE stock a good buy now?
For a company with such longevity, it might be surprising to discover that it hasn’t traded this low since the 2008 Great Recession. Perhaps the real question is whether GE is one of the more undervalued growth stocks for the 2020s.
It has ten subdivisions that extend across a broad range of industries, including aviation, capital, research, healthcare, digital, and power. Despite its reach, the company’s stock underperformed the market in the 2010s.
So what’s next for GE share price?
GE Stock Rallied After Beating Expectations
GE consistently beat analyst earnings estimates throughout 2020, but it wasn’t until November that market sentiment truly sparked a rally. The company was in a rebuilding phase since 2018, working aggressively to fix its balance sheets to become more competitive.
There was plenty of digging to do out of a $134.6 billion debt, $28.7 billion pension deficit, and $38.1 billion in insurance-related liabilities by 2017 year-end.
Over the next three years, it improved its position to $44.2 billion in debt, $22.9 billion pension deficit, and $29.5 billion in cash and investments. It grew this to $39.2 billion by year end with another $2.5 billion paid down into the pension plan. This covers its pension requirements until 2023 and gives it room to spend where needed over the next five years.
GE can respond more quickly to the airline and other industries as the economy recovers from the pandemic. Of course, when exactly it will rebound and how much government stimulus will be needed is up for debate.
Killer Third Quarter Earnings Spark GE Stock Higher
GE reported a killer third quarter 2020 earnings report. Total revenues for the quarter were $19.4 billion, which prompted CEO Larry Culp to declare $2.5 billion free cash flow in the fourth quarter.
Overall, the company paid down $11.7 billion in debt to improve its financial position.
It continues bleeding cash in its industrial and aviation subsidiaries, but it’s selling off unprofitable businesses to keep debt manageable. The company also plans to monetize its $5 billion stake in Baker Hughes (BKR) through 2023.
The company spent the pandemic updating internal processes across operations to improve the bottom line and account for a virtual work environment. Its COVID-19 pandemic response required approximately $3 billion in spending for the year, $2 billion of which was completed by the start of Q4.
GE Valuation Pegs Intrinsic Value At…
GE stock hasn’t broken out since its 2017 crash, although it delivered strong results in the eight years leading up to that.
A quick look at its valuation suggests that a fair market value for GE share price is right around the $10 per share mark.
Nevertheless, bullish investors believe it could be a value buy ahead of the economy fully reopening.
On the flipside, stalled stimulus talks and a second wave of coronavirus infections has investors worried. It could be 2021 or later before the rest of the economy fully recovers.
Still, GE continues to forge higher. Even though its steady growth flies in the face of skeptics, its P/E ratio hovering over 30x is lofty and a cause for concern among eagle-eyed value investors.
It’s PE ratio is high compared to Lockheed Martin (LMT) and Siemens AG, but well below Amazon (AMZN). And it’s competing with all of them on several fronts. Some bearish investors believe now is the time to unload the stock though.
Let’s explore that angle.
Will GE Stock Fall?
Lack of a stimulus plan in Washington kept Wall Street largely stifled for much of December. Although GE outlasted the market, it started to sag by mid-December.
A lofty valuation, high PE ratio and concerns over choppy revenue forecasts for fiscal year 2021 cast a shadow on the future share price projections.
Although the pandemic resurgence and lack of government stimulus is uncertain heading into the holidays, GE has enough industries to continue pulling through. Its most underrated strength is in R&D, and the innovation coming from GE Research and its digital branch should carry it through another year of uncertainty.
Is GE Stock A Good Buy? The Bottom Line
GE is a longstanding American corporation that topped any industry it competed in for over a century. Scandals rocked the company in the decade prior to the pandemic, and when the coronavirus crashed it, the stock’s value remained stagnant through most the year.
Veteran GE investors are used to such drops, and many know it can reach much larger market valuations than the $100 billion it’s been hovering around recently.
Regardless of whether the economy recovers next year, GE’s innovation got it this far, and it’ll likely last another century. The only question is which innovations will reign in the 2020s and beyond.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.