Summary
- GE has suffered doubly under the coronavirus, but I expect quicker a recovery in airlines and energy than investors think.
- With growth catalysts in renewable energy and healthcare, GE could turn FCF around by 2021.
- Despite the risk of GE capital, the Fed and Treasury will support GE, and the stock is set to rise from here.
Thesis Summary
General Electric Company (GE) has been hard hit by the coronavirus shock, and unlike the general market, the stock has barely rebounded since the March bottom. While investors are right to be worried since a great part of GE’s business relates to aviation and energy, today’s price could be an opportunity to buy a company with a 100+ year history at a discount. GE has promising opportunities in healthcare, renewable energy and I expect the aviation sector to recover more swiftly than analysts imagine.
Source: estrategiaynegocios.net
Company Overview
GE has five main segments, which are not that closely related. The other notable thing about the company is that revenues have been declining significantly for the last 10 years. Unsurprisingly, the stock price has fallen with it. But on the bright side, GE has managed to reduce its balance sheet and expenses accordingly, although the company has seen losses in recent years.
Source: 10-Q
Above we can see a summary of revenues and profit for the latest quarter. These are broken down into GE’s five main segments: Power, Renewable Energy, Aviation, Healthcare, and Capital. Overall, the fall in revenue is not that alarming considering the overall Q1 results we have seen market-wide. Aviation and Capital fell the most, but Renewable Energy and Healthcare grew revenues.
An interesting observation is that GE increased earnings by 73%. Of course, this can be attributed to “Corporate items and eliminations,” which provided around $6 billion in “earnings.” Herein lies the question of whether GE is a good investment. The company has been continually selling parts of its business. But will there be anything worth investing in once GE becomes as lean as it can? And is there a chance we could see GE face bankruptcy before that?
