On Feb 27, Zacks Investment Research downgraded
General Electric Company
) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold),
primarily due to tepid fourth-quarter 2013 earnings.
GENL ELECTRIC (GE): Free Stock Analysis
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Why the Downgrade?
Over the past week, General Electric has witnessed downward
earnings estimate revisions for 2014. This negative revision
seems to have resulted from the fact that General Electric failed
to comprehensively beat analysts' expectations and posted in-line
earnings. The diversified conglomerate had posted a 2.86% beat in
the preceding quarter, and investors probably had expected it to
post a healthy beat this quarter as well.
In addition, the Zacks Consensus Estimate for the first quarter
of 2014 is currently pegged at 32 cents, reflecting a
year-over-year contraction in growth of nearly 18.0%. For the
current year, the Zacks Consensus Estimate has also moved down by
a penny to $1.69, reflecting a 5.9% decline over the past week.
General Electric is also expected to underperform its peers in
the medium term as its growth estimate for the next 5 years is
pegged at 8.1%, compared with the 11.3% for the overall industry.
Furthermore, General Electric's current PEG ratio is at 1.85
compared with the industry PEG ratio of 1.51. Conventionally, a
PEG ratio of 1 or less is considered to be healthy or undervalued
General Electric is in the process of downsizing its financial
services business, GE Capital, which generates roughly 45% of its
operating earnings. General Electric aims to reduce revenue
contribution from GE Capital to about 1/3 of total earnings in
the future. Its Industrial segment is also struggling to achieve
the margin expansions and consistent earnings growth delivered by
its peers. The company's significant international presence
further exposes it to currency fluctuations, political and
economic disruptions - all of which can directly impact its
Other Stocks to Consider
Other stocks in the industry with favorable Zacks Ranks that are
worth considering include
Noble Group Limited
Hutchison Whampoa Limited
). While Noble Group carries a Zacks Rank #1 (Strong Buy), 3M and
Hutchison Whampoa hold a Zacks Rank #2 (Buy) each.