General Electric Stock Falls As Guidance Disappoints

Shares of General Electric gained downside momentum after the company released its fourth-quarter earnings report.

General Electric reported revenues of $20.3 billion and adjusted earnings of $0.92 per share, missing analyst estimates on revenue and beating them on earnings.

For the full year 2022, the company expects to report adjusted earnings of $2.80 – $3.50 per share compared to earnings of $2.12 per share in 2021. Free cash flow is expected to total $5.5 billion – $6.5 billion.

The market focused on the EPS guidance as analyst estimates for 2022 were close to $4.00. With a midpoint of guidance at $3.15 per share, General Electric’s earnings expectations for 2022 are well below analyst forecasts, so it’s not surprising to see that the stock is down by more than 7% today.

What’s Next For General Electric Stock?

S&P 500 has been under significant pressure in recent weeks, and traders are sensitive to any bad news. In this light, it remains to be seen whether speculative traders will rush to buy General Electric stock after the recent pullback.

Assuming that the company will be able to report earnings at the midpoint of its guidance, the stock is trading at roughly 28 forward P/E which does not look cheap for General Electric.

In addition, the pressure on higher-PE stocks has been visible in recent trading sessions. While General Electric’s valuation may look modest compared to various tech leaders like NVIDIA or Tesla, traders should keep in mind that P/Es in the 30s or high 20s for companies like General Electric will always be questioned by the market.

To justify its current valuation, General Electric should deliver solid growth in the next few years. However, the recent guidance shows that this growth may be more modest compared to analyst expectations, which may serve as a longer-term negative catalyst for General Electric stock.

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This article was originally posted on FX Empire


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