GE earnings: Wall Street analysts have lowered the beat bar, but investor expectations are now ‘slightly elevated’

Don’t miss: GE stock jumps to 5-month high as plan to split into 3 companies boosts hopes of a breakout.

The company is expected to post year-over-year growth on the bottom line for the third-straight quarter, but a 13th-consecutive quarter of total revenue declines, according to FactSet data, as the company has continued to execute its turnaround plan by selling off assets.

Analysts have marked down their expectations for profit, revenue and the closely watched industrial free cash flow since GE’s split announcement, but that could be more a factor of macroeconomic concerns than company-specific worries.

RBC Capital analyst Deane Dray said the fast spread of the omicron variant of the coronavirus that causes COVID-19 since early December and continued supply chain disruptions and labor shortages “continue to plague” the multi-industrial sector.

“Demand remains solid but many companies are building record backlog and are unable to handle the high volume of orders,” Dray wrote in a research note to clients. “The setup for fourth-quarter earnings is now likely more dour than consensus was expecting in early December.”

The other concern is what GE might say when it provides its forward outlook, which Dray suggested could include more revenue pushouts and 2022 guidance that is “more back-half weighted.”

That said, while the bar to beat analyst forecasts has been lowered, Dray said the fact that GE’s stock has outperformed its peers in recent weeks indicates “expectations appear slightly elevated.” That suggests it could take a bigger beat than usual to lift the stock.

GE’s stock fell 2.0% Friday to $96.30. It has slumped 6.6% amid a four-day losing streak but has gained 1.9% year to date. Meanwhile, the SPDR Industrial Select Sector exchange-traded fund
XLI,
-0.92%
has lost 4.4% this year and the S&P 500 index
SPX,
-1.89%
has dropped 7.7%.

Here’s what Wall Street expects GE to report, according to a FactSet survey of analysts:

Earnings: The average estimate of 18 analysts surveyed by FactSet is for adjusted earnings per share of 85 cents, up from 64 cents in the same period a year ago. The EPS consensus has come down by a nickel since the end of the third quarter.

GE has beat the FactSet EPS consensus the past three quarters, after missing for three-straight quarters before that.

Estimize, a crowdsourcing platform that gathers estimates from buy-side analysts, hedge-fund managers, company executives, academics and others, has the EPS estimate more than just slightly elevated at 91 cents.

“This quarter is going to be a particularly noisy one as GE is transitioning its financials to single-column reporting going forward, where headline results will now be on a consolidated basis,” RBC’s Dray wrote.

Revenue: The FactSet consensus is for revenue of $21.31 billion, down from $21.93 billion a year ago. The consensus estimate back on Sept. 30 had called for a slight increase to $22.22 billion. The average Estimize estimate, however, is lower at $21.21 billion.

GE has missed the FactSet revenue consensus the past three quarters, after beating for five-straight quarters before that.

Among GE’s business segments:

• The FactSet consensus for Aviation revenue is $6.68 billion, up from $5.85 billion a year ago. Aviation, which had been hurt the most by the COVID-19 pandemic, has missed revenue expectations the past three quarters, and in six of the past seven quarters.

• Power, which was GE’s biggest problem area pre-pandemic, is expected to report revenue of $5.17 billion, down from $5.38 billion a year ago. Power has beat revenue expectations in five of the past six quarters.

• Healthcare revenue is expected to inch down to $4.72 billion from $4.82 a year ago. The segment missed third-quarter revenue expectations after beating for the previous six quarters.

• Renewable Energy revenue is expected to slip to $4.35 billion from $4.44 billion a year ago. The company missed expectations last quarter, after beating in eight of the previous nine quarters.

Industrial free cash flow: The average estimate of five analysts surveyed by FactSet is $3.06 billion, compared with $4.36 billion a year ago. On Sept. 30, the estimates of two analysts surveyed by FactSet were $1.14 billion and $3.71 billion, leading to an “average” of $2.42 billion.

RBC’s Dray expects GE to provide 2022 free-cash-flow guidance of between $4.0 billion to $5.5 billion, which compares with the FactSet consensus of $5.5 billion.

Stock reaction: The stock rose 2.0% on the day third-quarter results were reported on Oct. 26, and gained 1.2% the day of second-quarter results. Before that, the stock rose the day earnings were reported in six of the previous 10 quarters, with the average one day gain of 7.5%. The average one-day loss on the days it fell after earnings was 2.2%.