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How Will GE Perform In The Second Half Of 2018?


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General Electric ( GE ) has had a rough ride over the past year, and has seen its stock decline consistently for nearly two years now. GE's shares have slumped nearly 60% from $31 in early 2017 to low of $12 in recent weeks. Further, the Dow dismissal, dividend cuts, and management's lower end EPS and cash flow guidance  for 2018 continue to put pressure on the stock. GE had a decent first half of 2018, with revenue growing by 5% year-on-year to just over $58.7 billion, while adjusted earnings came in at 35 cents per share (flat year-on-year). Aviation and Healthcare were the top performers for the conglomerate in the first half of 2018, with revenues growing 10% and 8% year-on-year, respectively. The company's turnaround could take some time and will depend on an improving business environment and global growth, and accordingly, we expect GE to report mixed results in the next few quarters. Below we provide a brief overview of the company's results and what lies ahead.

We have created an interactive dashboard analysis which outlines our expectations for General Electric in the second half of 2018 . You can modify the key drivers to arrive at your own price estimate for the company.

Factors That May Have An Impact In The Upcoming Quarters

The Aviation segment contributes nearly 23% of the company's overall revenue and has seen its revenue grow by 10% to $14.6 billion in the first half of 2018. The segment enjoyed a strong first half of 2018, as margins improved, as a result of higher equipment orders and commercial and military spare parts, increased demand for LEAP engines, and cost efficiency. GE is one of the leading players in the aviation market and is well positioned to increase its share over time. We expect GE's latest wins at the Farnborough international airshow to complement the segment's continued tailwinds and drive segment revenue to nearly $28 billion (+ 4% y-o-y) driven by strong growth in the Military business, air freight volumes, and the delivery of 1200 LEAP engines by 2018 end.

The Healthcare segment contributes just under 16% of the company's overall revenue and has seen its revenue grow by 8% to $9.7 billion in the first half of 2018. The segment enjoyed a strong first half of 2018, largely due to strong growth in the U.S. and emerging markets, attributable to robust global growth in ultrasound and imaging. We expect this trend to continue into 2018, as a result of increased use of ultrasound across many surgical specialties. This increased demand is primarily driven by strong demand in emerging markets - like India, China, Middle East, and Africa. However, GE plans to move the Healthcare segment out of its core business over the next 12-18 months.

The Renewable segment contributes under 10% of the company's overall revenue and has seen its revenue fall by 19% to $3.3 billion in the first half of 2018. The lackluster first half of 2018 was largely due to lower onshore wind turbine orders. However, the acquisition of LM Wind Power bolstered the segment in the first half of 2018, and we believe it should provide reasonable growth opportunities. GE is one of the leading players in the renewable energy segment and is well-positioned to increase its share over time. The Renewable Energy segment holds decent growth potential for GE, as a result of the increasing domestic and international wind and hydro orders. We expect the segment's tailwinds to provide decent medium-term growth opportunities driven by strong growth in the domestic and international onshore wind and hydro orders, and offshore wind orders.

The Power segment contributes nearly 29% of the company's overall revenue and has seen its revenue fall by 15% to $14.8 billion in the first half of 2018. The subpar first half of 2018 was largely due to fewer than expected equipment (gas turbines, aeroderivative, and heat recovery steam generator) orders. This was mainly due to the high-end gas turbine market being fairly weak as a result of the growth of renewable energy, and GE expects challenging power markets to continue into 2018. We expect the 2018 revenue in this segment to decline by nearly 7% to $32.8 billion, driven by ongoing pricing pressure and lower than expected equipment orders.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks , US Markets , Investing Ideas
Referenced Symbols: GE , MMM , UTX



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