General Electric Stock Pops on Earnings Beat, Stage Set For Growth
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General Electric (NYSE:GE) reported its second quarter 2021 results on July 27. GE stock closed at $12.92 on Monday, and on the strength of both an earnings and revenue beat, shares surged as high as $13.47 on Tuesday before settling down. At this point, GE shares have gained about 25% in value so far in 2021. Over the past 12 months, the performance is even more impressive, with a 95% return.
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Is the long-promised GE turnaround kicking in? If so, is now the time to add General Electric to your portfolio?
A lot of investors are wary of GE, and understandably so. The company was struggling mightily just a few years ago. There were fears what was once America’s most valuable company would be reduced to junk-bond status.
Even after GE stock nearly doubled in value over the past 12 months, the company’s market capitalization of roughly $115 billion is less than half the $280 billion it was worth just five years ago. And a fraction of the over $500 billion market cap GE boasted in 2000. However, that relative weakness plus a turnaround story and growth trajectory equals opportunity.
GE Beats Earnings and Revenue Estimates For Q2
When General Electric reported its earnings Tuesday morning, the market was expecting a big improvement. Last year at this time, the company reported an adjusted loss of 14 cents per share. The market was looking for adjusted earnings of 3 cents per share, along with revenue of $18.14 billion for the quarter.
GE did better than expected. Revenue was $18.28 billion, up 9% year-over-year. Adjusted earnings per share were 5 cents. There was even an unexpected swing to positive cash flow. The company’s CEO commented on the performance: “Orders and revenue returned to growth, our operating margins expanded across all segments, and we generated positive Industrial free cash flow.”
The positive news was enough to help GE stock pop. Looking through those results, I picked out more good news that makes me feel even more strongly about GE’s turnaround and the long-term growth potential for GE shares.
Aviation Showing Signs of Recovery, Big Wind Turbine Win
Several months ago, I wrote that General Electric’s growth is particularly dependent on the performance of its Aviation and Renewable Energy divisions. Aviation has been hurting, hammered by a pandemic that grounded aircraft and stopped orders for new GE engines. Renewable Energy was a division with huge growth potential, given the pressure to drop fossil fuels. GE has other big divisions including Healthcare and Services, but Aviation and Renewable Energy have the potential to make the kind of big gains that really move the needle.
There were positive signs of this in the Q2 results. GE noted that its Aviation division was “showing early signs of recovery.” As for Renewable Energy, the company reported it has finalized the contract to provide 87 Haliade-X 14 MW turbines for Dogger Bank C.
Located off the UK., this will be the world’s largest offshore wind farm when completed, capable of powering 6 million homes. To put the Halide X turbine’s capabilities in perspective, one rotation of its blades generates enough electricity to power a home for two days. GE’s high profile involvement is expected to drive many additional orders.
Bottom Line on GE Stock
GE stock has come a long way from just a few years ago, when it was flirting with junk bond status. Its performance is continuing to sway analysts as well. GE shares currently have a B rating in Portfolio Grader. Among the investment analysts polled by the Wall Street Journal, they earn an “Overweight” rating with an average $14.70 price target.
That’s still a long way off from the $30 level GE stock was trading at five years ago, but it’s moving in the right direction. And if you’re considering an investment in General Electric, that’s a lot of runway for growth.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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