GM Further Cuts Production in North America Due to Global Chip Shortage

By Ben Klayman

The U.S. automaker said its Wentzville, Missouri, assembly plant would be idled during the weeks beginning March 29 and April 5. It will extend down time at its plant in Lansing, Michigan, which has been idled since March 15, by two weeks.

The action was factored into GM’s prior forecast that it could shave up to $2 billion off this year’s profit, spokesman David Barnas said. GM did not disclose how much volume would be lost by the move, but said it intended to make up as much lost production as possible later in the year.

The chip shortage came as North American auto plants were shut for two months during the COVID-19 pandemic last year and chip orders were canceled, and as demand surged from the consumer electronics industry as people worked from home and played video games. That’s now left carmakers competing for chips.

Semiconductors are used extensively in cars, including to monitor engine performance, manage steering or automatic windows, and in sensors used in parking and entertainment systems.

Vehicles affected by the GM production cuts include the mid-sized pickup trucks, the Chevrolet Colorado and GMC Canyon in Missouri, and the Cadillac CT4 and CT5 and Chevy Camaro cars in Michigan.

Meanwhile, GM said its San Luis Potosi, Mexico, assembly plant, idled since Feb. 8, will resume production with two shifts beginning the week of April 5.

Also on Wednesday, Ford Motor Co said it would cut output this week of the Transit van at its Kansas City, Missouri, assembly plant due to the shortage. Production of the flagship F-150 pickup at the plant is not affected.

Last week, GM said it was building certain 2021 light-duty full-size pickups without a fuel management module, hurting their fuel economy performance by one mile per gallon.

Ford and Stellantis have said they would partially assemble and park their large pickups to finish later when chip supplies allow.

Japanese automaker Honda Motor Co on Tuesday said it would further cut North American production due to supply-chain issues, including the chip shortage.

Exacerbating the shortage was a recent fire at a Renesas Electronics chip plant in Japan. Barnas said GM was assessing the impact of the blaze. Ford is doing the same, while Stellantis and Mazda said their operations have not yet been affected.

German auto supplier Continental said it was assessing the impact of the fire and was in “daily contact” with Renesas.

“We are considering all possible measures, including the evaluation of other alternative technical solutions,” Continental said in a statement.

(Reporting by Ben Klayman in DetroitEditing by Bernadette Baum)

Why Shares Of General Electric Are Down By 6% Today?

General Electric Video 10.03.21.

General Electric Stock Falls After Company Cuts Earnings Guidance

Shares of General Electric found themselves under pressure after the company announced that its full-year earnings per share would be $0.15 – $0.20 compared to its previous guidance of $0.15 – $0.25.

The stock was moving higher ahead of the company’s Investor Day so the market expected that the company’s actual results in 2021 would be closer to the higher end of the original guidance. In this light, the new guidance served as a material bearish catalyst for the stock.

In addition, the company recommended a 1-for-8 reverse split in order to decrease the number of shares outstanding. At 8.77 billion, General Electric’s share count is huge, so this move makes sense.

Traders are also taking a close look at the company’s decision to combine its GE Capital Aviation Services with AerCap, whose stock has recently gained ground on rumors about the upcoming deal.

What’s Next For General Electric?

Assuming that General Electric meets its earnings guidance in 2021, its stock is currently trading at a forward P/E for 2021 of  65 – 87. Analysts expect that the company’s performance will materially improve in 2022 and 2023, but they may be pressed to revise their forecasts after the recent guidance cut.

Shares of General Electric have been steadily moving higher in 2021, so the market was not prepared to hear any disappointing news as it looked like the company was headed in the right direction.

The AerCap deal may be serving as an additional negative catalyst in the near-term as the deal is complex and General Electric may need time to get positive results out of this combination. In addition, the deal will likely have to go through some regulatory hurdles which may take up to a year.

At the same time, the stock has pulled back materially from recent highs and may attract those traders who missed the recent upside move and were waiting for such an opportunity.

For a look at all of today’s economic events, check out our economic calendar.

General Electric Losing Altitude After Aircraft Leasing Sale

General Electric Co. (GE) is trading lower by more than 3% in Wednesday’s pre-market after AerCap Holdings Inc. (AER) announced an agreement to acquire aircraft leasing division GE Capital Aviation Services. GE will receive 111.5 million newly issued shares in the deal, along with more than $24 billion in cash, and own 46% of AER after closing the transaction. The partial merger will require regulatory approval, which is expected by the fourth quarter of 2021.

Reverse Split Approved

The GE board also approved a 1-for-8 reverse split that will lift the stock price above 100. There are currently 8.74 billion shares outstanding, with a float of 8.71 billion. The new pricing and float will make short selling more attractive, with current daily average volume at nearly 80 million shares and a short float of less than 1%. That’s a two-edged sword for future price action because bad short bets could stoke the upside.

CEO Larry Culp issued an upbeat statement after the news, noting “I remain confident we will deliver value for GE’s shareholders, employees, customers, and communities for the long term. We are excited to shift more toward offense, investing in breakthrough technologies to serve the needs of our customers and the world—for more sustainable, reliable, and affordable energy; more integrated and personalized healthcare; and smarter and more efficient flight.”

Wall Street and Technical Outlook

Wall Street consensus has improved in the last year, yielding an ‘Overweight’ rating based upon 14 ‘Buy’, 7 ‘Hold’, and no ‘Sell’ recommendations.  Price targets currently range from a low of $5.00 to a Street-high $21.00 while the stock is set to open Wednesday’s U.S. session less than $1.00 above the median $13.12 target. The bearish reaction to the deal likely reflects continued skepticism and a wait-and-see attitude about GE’s long-term outlook.

General Electric completed a double bottom last week, confirming the end of a four-year downtrend. It’s risen 255% since May 2020 and is trading above the 200-week moving average for the first time since 2017. However, the new uptrend has a long way to go because, despite progress, the stock is still situated below the .382 Fibonacci selloff retracement level. Reward: risk is turning against long positions at current levels, with major resistance between 15 and 20.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why Shares Of General Electric Continue To Move Higher?

General Electric Video 04.03.21.

General Electric Stock Gets A Boost From Analyst Upgrades

Shares of General Electric have started the year on a strong note and gained about 25% year-to-date. Today, the stock tested multi-month highs at the $14 level after Morgan Stanley upgraded the company’s shares and changed its price target from $13 to $17.

Morgan Stanley believes that the upcoming investor day presentation, which is scheduled to take place on March 10, will serve as an additional upside catalyst for the stock.

Earlier, UBS increased its price target for General Electric stock from $14 to $15 which also provided significant support to the company’s shares.

In late January, General Electric released its fourth-quarter report which beat analyst estimates on both earnings and revenue. The company delivered solid cash flow performance, and the market continued to buy the turnaround story.

What’s Next For General Electric?

The current rally of General Electric stock started back in October when traders began to pay more attention to cyclical stocks. The rally continued month after month and pushed the company’s valuation to high levels. Currently, General Electric shares are trading at more than 25 forward P/E for 2022 which looks like a rich valuation for an estabilished cyclical company.

However, the market believes that the upcoming U.S. economic stimulus package and the ultimate improvements on the coronavirus front will provide enough support to the company’s business. In addition, General Electric’s performance is expected to improve in the next several years which is bullish for the stock.

The near-term fate of General Electric stock will depend on whether cyclical stocks will remain strong amid inflation fears, which are highlighted by the recent increase in the U.S. government bond yields.

If the market continues to buy cyclical stocks, General Electric stock will have a great opportunity to develop additional downside momentum as the company also has internal upside catalysts.

For a look at all of today’s economic events, check out our economic calendar.

General Electric Moves Higher On Strong Q4 Free Cash Flow Performance

General Electric Video 26.01.21.

General Electric Shares Gain Ground After The Release Of Q4 Earnings Report

General Electric stock is up by more than 5% in today’s trading session after the company provided its fourth-quarter earnings report.

General Electric reported fourth-quarter revenue of $21.9 billion and adjusted earnings of $0.08 per share, beating analyst estimates on revenue and missing them by $0.01 on earnings.

Traders focused on the company’s improved free cash flow performance. The company recorded free cash flow of $4.4 billion in the fourth quarter, driven by working capital movements and improving Renewables and Power orders.

General Electric managed to improve its free cash flow performance despite the challenges posed by the coronavirus pandemic, and the market rewarded the company by pushing its shares to multi-month highs.

Analysts expect that General Electric’s earnings performance will continue to improve in the upcoming years, and the fourth-quarter earnings report suggests that the company is moving in the right direction.

General Electric Stock May Move Towards 2020 Highs In Case Sector Rotation Continues

Shares of General Electric finished the year 2020 on a strong note as sector rotation provided significant support to industrials in the last months of the previous year.

However, the stock has not reached 2020 highs as the continued problems on the coronavirus front around the world continue to weigh on market sentiment.

As S&P 500 is at all-time highs, investors and traders actively search for stocks which have not reached exorbitant valuations. In this situation, General Electric’s successful turnaround story and increased sector rotation may push the company’s shares to new highs.

However, it should be noted that General Electric’s performance remains heavily dependent on the developments in the real economy while a material stake in Baker Hughes makes the company’s shares sensitive to oil price dynamics.

In this light, General Electric stock will likely need additional positive news on the vaccine front for sustainable upside in the near term as markets served by the company will clearly benefit from improvements on the healthcare front.

For a look at all of today’s economic events, check out our economic calendar.

Revisiting Our October 23 Four Stocks To Own Article – Part I

Just before the US Elections, we authored an article related to four stocks/sectors that we thought would do well immediately after the November 2, 2020 elections.  The article highlighted how sector rotation in almost any market trend can assist traders in finding solid trading triggers.  We picked four stocks from various sectors for this example:

AAL American Airlines Travel/Leisure
ACB Aurora Cannabis Cannabis
GE General Electric Industrial/Specialty Industry
SILJ Junior Silver Miners ETF Precious Metals Miners

When you review my article from October 23 and the November 6 follow up article related to these stock picks, you will quickly see that all of these stocks exhibited similar types of technical patterns.  They were all bottoming in an extended rounded bottom formation and had all started to near a Pennant/Flag Apex in price.  Additionally, many of them, with the exception of SILJ, had set up a very clear RSI technical divergence pattern over the course of setting up the extended bottom in price.

My research team and I selected these stocks because of key expectations related to the post-election mentality of investors related to various sectors.  First, the cannabis sector had a number of new US states approve cannabis legislation – providing for an expected increase in business activity for the entire cannabis sector.  Second, no matter who won the election, another round of stimulus was likely to be approved resulting in increased economic opportunity for companies like GE and AAL.  The Travel and Leisure sector still had its risks as a surge in COVID cases could greatly disrupt future travel expectations.  Junior Silver Miners was our “hedge trade”.  If none of these other stocks started to rally, then Silver Miners would likely move 15% to 20%+ higher over time.

We thought it would be a good time to check in with our picks to share the importance of using sector trends to your advantage.  Currently, there are dozens of sectors that are either in a solid bullish trend or are shifting into new bullish trends.  Being able to catch these setups early and having the confidence to act on these trends is very important. We highlighted some of these setups in our October 23 article, but they happen all the time in various market sectors.

What is important is being able to see the setups, identify the sectors that have the strongest capability for future trends, then determining if you should trade the Sector ETF or some individual stocks within that sector.  Generally, the Sector ETFs provide enough liquidity and opportunity that you don’t need to worry about the individual stocks.  Yet, sometimes, applying the same techniques to the strongest sector stocks can add a very valuable component to your trading.

Below, we have highlighted the accomplishments of each stock symbol over the past 60+ days.  For this example, we will estimate a $20k allocation for ALL TRADES ($5k each) and use a simple 33% target allocation for Target 1, Target 2, and the Trailing Remainder.  That means, we take 33% of the position off at Targets 1 and 2, then let the remaining 33% trail with a protective stop.

Symbol Entry Price Target 1 % Target 2 % Last Price %
AAL $12.60 39.81% NA 22.44%
ACB $4.68 124.35% NA 114.72%
GE $7.63 22.77% NA 48.56%
SILJ $14.68 NA NA 10.11%

Our $20k sample account would look something like this right now…

Symbol Entry Price Target 1 $ Target 2 $ Last Price $
AAL $12.60 $656.87 NA $6,408.61
ACB $4.68 $2,068.28 NA $10,802.59
GE $7.63 $375.71 NA $6,995.44
SILJ $14.68 NA NA $5,505.50
Total => $29,712.14

Overall, this represents a +48.5% net account profit in just over 60 days by focusing on sector trends and rotations.  In the future, if any of our higher Target levels are reached, we’ll pull another 33% of these trades and lock in these gains while we let the remaining position carry forward with a trailing stop.  The trailing stop should be based on the last completed target level reached.  For example, if Target 1 is reached, then the stop should be placed just below the Entry Price level.  If Target 2 is reached, then the stop should be placed just below the Target 1 level and it should begin to trail higher as new price highs are reached.

Usually, we will pick an exit price level based on some type of trend failure or reversal point.  In most cases, this happens when the longer-term (Weekly based) moving averages change direction and price activity displays a clear technical pattern showing the bullish trend has ended.  Most traders are capable of determining their own exit points using technical indicators and other tools as they wish.

When some sector is trending very strongly, we don’t want to attempt to second guess the peak level or end of the trend.  We just want to ride that trend for as much profit as we can – unless some other sector sets up a new opportunity where we can better deploy our assets for profits. We like to let the trend work itself to an eventual end and use our Target Levels to lock in gains along the way.

American Airlines Trade

The following Weekly chart of American Airlines (AAL) highlights the simple trade we suggested on October 23, 2020.  As you can see, the upward sloping lows in price aligned with the upward sloping RSI trend (in the lower pane).  AAL has reached our first target level (the MAGENTA line) and has recently settled near $15.13.  Our stop level should be just below our entry price level, near or below $12.60 at this time as we wait to see how the bullish trend continues.

In Part II of this article, we’ll go over the remaining three stock symbols we initially suggested on October 23, 2020 and highlight even more details related to sector trending.

Many years ago I was researching Japanese Candlesticks and the teaching of Seiki Shimizu (The Japanese chart of charts: Shimiz) settled well with my thinking.  In his writing, he suggests that more than 60% of the time traders are waiting for new setups/trades.  This is something that many traders need to fully understand in order to balance aggressive trading tendencies with their abilities to create profits and protect assets.

If this theory is correct, then trades only need to focus on the 30% to 40% of any 12-month span of time  (three to four months) where the bigger sector trends/trades setup and initiate.  Otherwise, these trends may continue, in some form, over the remainder of the time to generate profits (or not).  This type of thinking suggests that traders only need to focus on the best immediate setups in any market trends/sectors and ignore the “froth” in the markets on a day-to-day basis.  Doing so will allow most traders the freedom to create profits by taking skilled and effective entry triggers while being able to enjoy life, family, and other hobbies.

Trading does not need to be a full-time, 24/7 effort.  The global markets generate big sweeping sector trends sometimes 2 to 4 times a year as capital moves in and out of various trend cycles (short, intermediate, and long term).  All we have to do is find the best sectors to trade, then wait for the trigger/entry setup. Now, imagine what it would be like if you could accomplish something like this every week or month with technology? You can with my BAN Trader Pro strategy and Hotlist.

BAN Trader Pro can help you identify and trade the Best Asset Now.  The BAN Hotlist helps us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to profit from sector rotation with my strategy. You can sign up here for my 100% educational webinar for free.

For a look at all of today’s economic events, check out our economic calendar.

Have a great week!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

General Electric Up 70% In The 4th Quarter

General Electric Co. (GE) rallied to an 8-month high in the first hour of Tuesday’s U.S. session following an Oppenheimer upgrade. The stock has risen more than 70% so far in the fourth quarter, underpinned by growing optimism the four-year downtrend has finally come to an end. The former icon of innovation fell an astounding 82% from the 2016 high into May 2020’s 29-year low, and more than 92% since posting an all-time high in August 2000.

GE Paying Off Old Debts

The company is working off an enormous debt load after years of bad management. The crash in bond yields is making the job easier, along with key personnel changes designed to end a near-comatose corporate culture. Unfortunately, bad timing is playing a role in GE’s recovery because the aviation division is posting huge losses due to the collapse in air travel and MAX-737 grounding. Fortunately, that crisis will ease as we get closer to wide-scale vaccine distribution.

Oppenheimer analyst Christopher Glynn upgraded General Electric from ‘Market Perform’ to ‘Outperform’, setting a price target of $12 while noting the “rating reflects our view of more pointed read-through of cost reduction initiatives, resulting in early stages of clearer breadth of operating momentum across segments. We believe working capital performance could surprise to the upside in 2021, considering GE is working through widespread facility consolidations and managing working capital amidst that during 2020”.

Wall Street And Technical Outlook

Wall Street is finally jumping on board the bull train, with a ‘Moderate Buy’ rating based upon 8 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $5 to a Street-high $12 while the stock is trading about $1.30 below the high target. This placement makes sense because this is a long-term recovery play rather than a short-term trading vehicle.

General Electric undercut the 2018 low at 6.40 during the pandemic decline, reversing after trading just below the 2008 low at 5.51. The uptick that started in the fourth quarter has established a ‘2B’ buy signal while continued upside that reaches or exceeds the February 2020 high at 13.26 will confirm a bullish double bottom reversal. That level has come into narrow alignment with the 200-week EMA, with a breakout establishing the first uptrend since 2016.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

 

Four Stocks To Consider Buying Before The US Elections

Our research team put together this list of stocks to help you understand how to attempt to target strategic gains between now and 30 to 60 days after the elections. If you have not been paying attention to what is happening in the markets right now, be sure to read to the end of this report.

If you have not already prepared for the election event, and the pending chaos that is likely to happen after the elections, you better start doing something to protect your portfolio right now. Leaving your portfolio exposed in the moderate to high risk sectors in your IRA or 401k could result in some wicked risks to your total capital if you are not cautious.

ARE YOU READY FOR A VOLATILTY SPIKE AND THE RISKS TO YOUR PORTFOLIO?

Personally, I’ve been getting calls from my family and friends over the past few weeks urgently asking me “what should I do with my retirement money?” and “how should I protect my assets before the elections?”. My family knows if they do nothing to protect their capital, the could be exposed to a -20% or -30% draw down if the market moves lower after the election. We don’t know of anyone that wants to ride out another -20% to -30% correction in the markets – right?

Well, if you are interested in taking a small portion of your capital and attempting to profit from these four simple stock picks we’ve identified, you may feel quite a bit better about how you managed your capital throughout the election event and over the next 30 to 60+ days.

First off, each of these symbols targets key benefits we believe will take place (or have a moderately high likelihood of taking place) after the elections. Secondarily, each of these symbols has setup a very clear technical pattern that suggests “the bottom is in”. Lastly, we’re only including FOUR symbols that we feel are properly hedged for risk – we’ll explain everything in more detail as we go through each symbol. Each of these chart will show very clear support levels in BLUE on each chart. Use your best judgment to identify proper stop levels for each of these setups. You must allow room for the trade to mature and initiate a rally attempt in order to secure the profit potential. It should be fairly easy to see the opportunities in each of these picks. Let’s get started.

American Airlines: AAL Weekly Chart

Airlines are going to benefit from the stimulus package that will be secured shortly after the elections. One way or another, the US government must support essential transportation services through any extended economic shutdown or further COVID economic collapse. There will be some rescue package for the airline sector, we believe, within 30 days after the elections.

The basing support level, shown by the lower BLUE line on this Weekly chart, highlights the upward price trend that we believe support another attempt at a price breakout (higher). We believe the news of a stimulus package that supports an Airline rescue plan will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $12.72 price levels. Ultimately, key resistance exists near the $28.50 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Aurora Cannabis: ACB Weekly Chart

The cannabis sector may benefit from a change at the state and local government level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for ACB to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +115% to +235% levels from the current $4.88 price levels. Ultimately, key resistance exists near the $32.76 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

General Electric: GE Weekly Chart

General Electric Company may benefit from any new infrastructure plans related to new policy/plans on the federal/state level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for GE to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +25% to +55% levels from the current $7.39 price levels. Ultimately, key resistance exists near the $18.05 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Silver Miners Juniors: SILV Weekly Chart

Junior Silver Miners are the “Hedge Trade” component for this simple portfolio. We believe Silver and Silver Miners will initiate a new upside price rally very shortly after the US elections and we believe this trade is an efficient “hedge” to the risk associated with the other three symbols in this simple portfolio. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher).

Silver miners should perform well once the price of gold starts a new uptrend and starts to rally towards $2200 price level. Fibonacci extension measured moves allow you to forecast where gold should rally to next as shown in this Sept 23rd article. We believe the potential for SILJ to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $14.98 price levels. Ultimately, key resistance exists near the $32.95 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Concluding Thoughts:

We hope you find the value in these four simple picks we have presented and understand how you can help to protect your investment portfolio by allocating a small portion of your portfolio into these opportunities. There is no guarantee that these picks will rally as we expect. There is no guarantee that the COVID-19 infections won’t skyrocket again – potentially shutting down the global economy again. You have to use your skills and abilities to manage these trades ON YOUR OWN. We are just showing you four potential trade setups that we believe have a strong likelihood of initiating an upside price move near or after the US elections. We hope you strongly consider the message we are trying to convey to you – protect your assets and prepare for extended volatility.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen

Chief Market Strategies

www.TheTechnicalTraders.com

 

General Electric Shares Jump 11% After CEO Culp Forecasts Positive Cash Flow in H2 2020

General Electric company’s shares surged about 11% after Chief Executive Officer Larry Culp said the industrial conglomerate’s free cash flow would turn positive in the second half of this year, Reuters reported.

The global digital industrial company’s shares ended Wednesday about 11% higher at $6.75; however, the stock is down more than 40% so far this year.

“We are really not waiting for the markets to come back and put the wind we had in our sails,” Culp said. “We know this is going to be a self-help story for a little bit longer,” Culp added the company’s performance in the H2 of the year will set the stage for a positive cash flow in 2021 as well, Reuters reported.

General Electric stock forecast

Ten analysts forecast the average price in 12 months at $8.40 with a high forecast of $11.00 and a low forecast of $6.30. The average price target represents a 24.44% increase from the last price of $6.75. From those ten equity analysts, five rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $8 with a high of $13 under a bull-case scenario and $3 under the worst-case scenario. General Electric had its price target lowered by Independent Research to $6.90 from $7.00 and rated “Hold”.

Other equity analysts also recently updated their stock outlook. Deutsche Bank cuts their target price to $6.25 from $6.51, Credit Suisse lowered their stock price forecast to $7 from $8, while UBS raised the target price to $8.5 from $8.

Analyst views

“While we view Aviation as a best-in-class franchise and see long-term upside on shop visits growth, we see a scenario where engines are cannibalized for available flight hours through 2021 and that maintenance gets deferred until 2022,” said Joshua Pokrzywinski, equity analyst at Morgan Stanley.

“Tail risks from Power, pension, and Long-Term Care are declining as 2021 brings a wall of cash and strong improvement in risk/reward. We see a clear path to 2.0x Industrial Net-Debt/Ebitda in 2020, and as cash flow ramps in 2021 and beyond, we see a broadening set of strategic opportunities.”

Upside and Downside Risks

Upside: 1) LTC could be a lower charge than $1 billion base case expectations. 2) Gas power generation could exceed 25-30 GW net additions per year, highlighted by Morgan Stanley.

Downside: 1) LTC remains an opaque liability that could result in a $9 billion in additional cash funding. 2) Our Global Utilities teams view the annual gross additions to gas power generation as being 25-40% lower than 2019 levels. 3) GE Power may not participate in China growth at historical levels.

Check out FX Empire’s earnings calendar

General Electric Under Pressure After Morgan Downgrade

General Electric Co. (GE) fell to a 2-month low in late July after reporting a Q2 2020 loss of $0.15 per-share, $0.06 worse than expectations, while revenue fell a stomach-churning 38.4% year-over-year to $17.75 billion. The release offered no forward guidance, leading many market watchers to theorize the financial outlook is worse-than-expected at the troubled conglomerate, which has been stuck in an historic downtrend since 2016.

General Electric Historic Downtrend

Years of mismanagement at General Electric came home to roost that year, with uncontrolled debt forcing institutional and retail investors to walk away, following a modest 7-year uptrend that failed to mount the 2000 or 2007 rally highs. Selling pressure accelerated into the end of 2018, dropping the stock to the lowest low since 2009 while 2020’s pandemic-driven downdraft sliced through support into an 18-year low.

The stock is under pressure on Monday after JPMorgan analyst Stephen Tusa withdrew their price target, stating “we are more negative on GE as we turn the corner into 2H20. The company continues to have no official guidance, which in our view implies difficulty seeing 3 to 6 months out, while debt maturities and options resets suggest GE does not see normal until 2024.” He ended with a warning that “the collapse of this forward estimate curve is coming soon.”

Wall Street And Technical Outlook

Wall Street is surprisingly upbeat on General Electric, hanging their hats on a well-documented reorganization plan that’s yet to produce positive results. It’s currently rated as a ‘Moderate Buy’, based upon 6 ‘Buy’ and 5 ‘Hold’ recommendations. Oddly, today’s bearish call marks the first ‘Sell’ recommendation, despite the long-term threat of bankruptcy. Price targets range from a low of $6.30 to a street-high $11 while GE opened the session just 20 cents above the low target.

General Electric bounced in May after undercutting the 2009 low by 3 cents, initiating a critical support test that’s still in progress. Buying pressure has been non-existent since that time, raising odds for an eventual breakdown that could signal the next phase in the iconic company’s demise. Unfortunately, a well-heeled suitor is unlikely to come to the rescue because few profitable companies would be willing to take over the enormous debt load.

General Electric Q2 Loss Widens; Target Price $3 in a Worst-Case Scenario

General Electric Co, a globally diversified technology and financial services company, reported a wider-than-anticipated quarterly loss of $2.2 billion in the second quarter, compared to a loss of $61 million during the same period a year ago, as coronavirus wrecked its aviation business, sending its shares down over 4%.

Following this release, the Boston-based industrial conglomerate’s shares closed down 4.35% at $6.59 on Wednesday, down over 40% year-to-date.

General Electric’s revenue declined 24% year-on-year to $17.7 billion in the second quarter and reported a cash outflow of $2.1 billion from industrial operations. The company also suffered a 44% decline in revenues in its aviation business.

“Narrow-moat-rated General Electric had a difficult second quarter. That was expected. GE’s higher-margin businesses within aviation, healthcare, and gas power were more heavily impacted by coronavirus and were down three times relative to the rest of GE Industrial. While we arguably overly anticipated the revenue pressures, we failed to fully appreciate the magnitude of difficulties management faces in excising fixed costs from GE’s business. To that end, we cut our fair value estimate by about 6.5% to $9.90 (from$10.60 previously), said Joshua Aguilar, equity analyst at Morningstar.

“We now expect adjusted EPS of $0.05 for full-year 2020, $0.47 in 2021, and $0.71 in 2022, as well as industrial free cash flow burn of just over negative $2billion for 2020. Our valuation implies a value of roughly 21 times our 2021 earnings expectations.  Given the unique challenges in the commercial aerospace industry, we encourage investors to look out to next year’s earnings, despite the clear level of macroeconomic uncertainty (which should be appropriately built into an investor’s margin of safety).”

Executive comment

“Our earnings performance was impacted by the ongoing impact of COVID-19 on our businesses, but Industrial free cash flow was better than our expectations and previously communicated range. We made faster progress on elements within our control, including our targeted cost and cash preservation actions,” said GE Chairman and CEO H. Lawrence Culp.

“We’re working through a still-difficult COVID-19 environment, and while it’s too early to predict the trajectory for the recovery of commercial aviation, we continue to plan for a prolonged return to prior levels of activity. Still, based on what we see today and the actions we’ve taken, sequential improvement in earnings and cash in the second half of the year is achievable. We expect to return to positive Industrial free cash flow in 2021. We are accelerating our transformation to make GE stronger and drive long-term, profitable growth.”

General Electric stock forecast

Eleven analysts forecast the average price in 12 months at $8.22 with a high forecast of $11.00 and a low forecast of $5.00. The average price target represents a 24.73% increase from the last price of $6.59. From those 11, five analysts rated ‘Buy’, six analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Deutsche Bank lowered its target price to $6.51 from $7.4, while UBS raised its target price to $8.5 from $8. Morgan Stanley target price is $8 with a high of $13 under a bull scenario and $3 under the worst-case scenario.

We think it is good to sell at the current level and target at least $5 in the short-term and $3 in a worst-case scenario as 100-day Moving Average signals a strong selling opportunity.

Analyst comment

“While we view Aviation as a best-in-class franchise and see long-term upside on shop visits growth, we see a scenario where engines are cannibalized for available flight hours through 2021 and that maintenance gets deferred until 2022,” Joshua Pokrzywinski, equity analyst at Morgan Stanley said.

“Tail risks from Power, pension, and Long-Term Care are declining as 2021 brings a wall of cash and strong improvement in risk/reward. We see a clear path to ~2.0x Industrial Net-Debt/Ebitda in 2020, and as cash flow ramps in 2021 and beyond, we see a broadening set of strategic opportunities,” he added.