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Analysts are adjusting numbers ahead of General Electrics first-quarter earnings, due next week. And the commercial-aerospace debacle is weighing on Wall Streets target prices for GE shares. <\/p>\n
UBS analyst Markus Mittermaier cut his price target for General Electric shares (ticker: GE) to $9 from $12 on Thursday. He still calls the stock a Buy and his price target is still 38% above recent levels. <\/p>\n
Citigroup analyst Andrew Kaplowitz cut his price target for GE shares to $9 from $11. He also still rates shares Buy. <\/p>\n
Despite the target price cuts, GE stock was up 2.3% Thursday morning. Predicting stock reactions in a Covid-19 world isnt as easy as it used to be. A lot of bad news is already reflected in GE shares. <\/p>\n
The stock is down 42% year to date, worse than the comparable drops of the Dow Jones Industrial Average, S&P 500 and other industrial companies. The Industrial Select Sector SPDR EFT (XLI) is down about 24% year to date. <\/p>\n
GE is a large industrial conglomerate, but its largest business is making jet engines and commercial aerospace has been hammered by the Covid-19 pandemic. Aerospace suppliers Barrons tracksincluding GEare down about 48% year to date. Boeing (BA) shares are off 58%. Stock in airlinesthe companies which ultimately buy the planes and jet enginesare down roughly 60% year to date. <\/p>\n
The path forward for commercial aerospace looks rough. Aerospace related headwinds in particular [are] an evolving headwind that could materially pressure results [versus] our prior expectation, Kaplowitz wrote in his Thursday research report. The International Air Transport Association cut its 2020 traffic estimate to down 48% year over year. About 17,000 planes, or 64% of the global fleet, are parked because of no demand. <\/p>\n
The outlook is hitting earnings estimates in 2020 and 2021. Kaplowitz cut his 2020 and 2021 earnings estimates by two dimes, to 20 cents and 45 cents a share from 40 cents and 65 cents a share, respectively. <\/p>\n
Commercial aviation faces unprecedented challenges, Mittermaier wrote. He assumes a return to 2019 commercial air-travel demand in 2024. He cut his 2020 and 2021 earnings estimates, as well, to 8 cents and 41 cents a share, respectively. <\/p>\n
Not everyone is as bearish on the outlook for GEs aviation business. Stalled but not broken, wrote Bank of America analyst Andrew Obin in a Wednesday research report. Covid-19 has stalled commercial aerospace but airlines cant avoid aftermarket services, he said. <\/p>\n
It might take years for demand for new planes to recover, but he thinks GEs aftermarket parts-and-service business will rebound much faster. Whats more, profit for aftermarket service is higher than for new engines. New equipment is sold at essentially break-even levels. The money is made in services. As a result, Obin thinks GE aviation profit margins will approach prior levels by 2022. <\/p>\n
He rates shares Buy and has an $11 price target for the stock. His 2021 estimates are actually below the other two analysts, at 35 cents a share. But he has earnings rebounding to 63 cents a share in 2022. <\/p>\n
The other two analysts also see a 2022 uptick. Kaplowitzs 2020 GE estimate is 55 cents a share. Mittermaiers number is 70 cents a share. It is tough to value stocks on 2022 earnings, but GE shares are trading for roughly 10 time the average of the three estimates. The S&P 500 trades for about 14.8 times 2022 estimates. <\/p>\n
The shape of the aerospace recovery is still up for debate. That is one reason for the valuation discount. Aerospace was one of the best-performing industrial end markets for the past decade, before Covid-19 upended everything. <\/p>\n
Write to Al Root at allen.root@dowjones.com<\/a><\/p>\n <\/p>\n Read the original post:<\/p>\n GE Stock Is Still a Buy, Analysts Say. Heres Why, and Where It Might Go. - Barron's<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Text size Analysts are adjusting numbers ahead of General Electrics first-quarter earnings, due next week. And the commercial-aerospace debacle is weighing on Wall Streets target prices for GE shares. Continue reading