General Electric Co. (GE) is trading at a 4-week high in Tuesday’s pre-market after beating Q2 2021 estimates by a few pennies and reaffirming fiscal year 2021 guidance. The struggling conglomerate posted a profit of $0.05 per-share, $0.02 better than consensus, while revenue rose a modest 3.1% year-over-year to $18.3 billion. GE raised its 2021 free cash flow outlook to the $3.5 billion to $5.0 billion range, about $1 billion higher than previous estimates.
Selling Unprofitable Divisions
The company is shedding unprofitable businesses after years of declining revenue, with a $30 billion sale of the aircraft leasing business to AerCap Holdings N.V. (AER) the latest divestiture. The pandemic threw a wrench in this multiyear pruning process but GE has survived supply disruptions and is now back on track. Even so, no one in their right mind believes this fossil from another era can grow enough revenue to restore its lost reputation as a capitalist powerhouse.
General Electric will complete a one-for-eight reverse split after Friday’s closing bell, lifting the stock price above the psychological $100 level. This oddly-timed move will reduce outstanding shares to just over one billion but is likely to have little or no effect on price action. In fact, the transaction is sending the wrong signal to Wall Street because reverse splits are typically used by struggling companies that are worried about delisting or bankruptcy.
Wall Street and Technical Outlook
Wall Street consensus has modestly improved so far in 2021, lifting to an ‘Overweight’ rating based upon 12 ‘Buy’, 1 ‘Overweight’, and 8 ‘Hold’ recommendations. Price targets currently range from a low of $5 to a Street-high $21 while the stock is set to open Tuesday’s session about $1.50 below the median $15 target. Potential upside through the third quarter appears limited, given proximity to the median target and a ceiling of resistance at $14.50.
General Electric ended a four-year decline at a 28-year low in March 2020 and turned higher, mounting the February 2020 peak at 13.26 in February 2021. The breakout failed immediately, yielding months of sideways action that’s been crisscrossing the contested level repeatedly. The stock is trading at the dead center of this pattern on Tuesday, offering mixed messages to shareholders. A rally over 14.50 is needed to overcome this barrier while a decline through the July low at 11.82 could generate much greater downside.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.