The General Electric logo is displayed on the outside of jet-engine test tunnels.
Luke Sharrett/Bloomberg
We are in the second half of the year, and 2022 earnings estimates will start to give way to expectations for 2023.
J.P. Morgan analyst Stephen Tusa has taken an early view at the outlook for General Electric ’s (ticker: GE) business in 2023. He doesn’t like what he sees.
“After material [valuation] multiple contraction and weak stock performance, we believe that it’s too early to step in, given a few small shoes to drop that add up to one big one: forward estimates,” wrote Tusa in a Thursday report.
GE stock is down 33% year to date. Tusa still isn’t ready to buy in. He just doesn’t believe 2023 earnings estimates for GE accurately reflect the risk of recession.
That risk is rising and a recession would pressure sales in GE’s power business as well as the business-jet aftermarket, according to the analyst. The added pressure might lead to no sales growth in 2023, along with lower earnings than the Street currently expects.
Tusa’s 2023 earnings-per-share estimate for the company is $3.30. That’s roughly 30% below the current Wall Street consensus of $4.87 a share.
If 2023 estimates drift lower it would likely be a headwind for the stock. That’s been the case for GE stock in 2022. EPS estimates for the full year started out at about $4 a share, but after a couple tough quarters, they have drifted down almost 30% to about $2.85. The decline in estimates closely mirrors the 2022 year-to-date stock decline of about 33%.
It’s a bearish take on the new year, and Tusa is a longtime GE bear. He rates shares at Hold, but at $50 he has the lowest price target on Wall Street. The average price target is almost $100 a share. That $50 gap is, of course, equal to about 100% of the current stock price.
For an example of how bearish that target is, take 3M (MMM). It’s another industrial conglomerate. It’s also deeply out of favor with Wall Street because of legal headwinds related to legacy liabilities related to chemicals, and allegedly faulty earplugs sold to the military. Only 5% of the analysts covering 3M stock rates shares at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
Still, the lowest analyst price target is $125. The average price target is roughly $150. The $25 spread is only 20% of the average stock price.
The spread between the low price target and the average price target for Honeywell International (HON) stock is about $36, or just 17% of the average analyst target price of about $216.
A target price like the one Tusa has for GE is unusual.
The rest of the Street doesn’t seem to believe things are as bleak. Along with the higher target price, about 68% of analysts covering GE rate shares at Buy.
Time will tell who is correct.
Write to Al Root at [email protected]
