General Electric is the oldest holding in the Contra portfolio and it appears like the long wait may finally be rewarded, with an improved bottom line and increased demand in the aerospace segment
has undergone a huge metamorphosis through the years, with the past five under chairman/CEO Lawrence Culp being particularly dramatic. His goal was to simplify the company, and that he has done. Under his watch, revenues dropped from just under US$100-billion to US$76-billion last year – and not all of that was because GE got rid of its 129-year-old light bulb business! The stock price – Benj paid US$124.
How might the price get there? First, orders are up 59 per cent from one year ago. The bottom line jumped 89 per cent, and more is expected as the EPS estimate has shimmied from US$1.70 to US$2.00 to between US$2.10 and US$2.30. Revenue growth that was expected to be in the high single digits is now estimated to be in the high teens to 20 per cent. Free cash flow is forecast to a range of US$4.1-billion to US$4.6-billion, up from US$3.6-billion to US$4.2-billion.
Meanwhile, defence should also help fatten the stock price, with orders doing better than a double. Engine output will grow handily, as orders are up 74 per cent year-over-year. Still, even with all the positives, investors considering this stock should note that the book value is less than $29, which should give buyers pause.
Of course, a huge question going forward is the global economy, that macro environment thing. Attitudes have dramatically shifted, with a huge cross-section of “experts” calling for a recession steadily for the past year. Now pundits are backing off that call. To be fair, our conviction was also that a downturn would already be upon us, and the conclusion quite simply is that we were wrong. Yes, we can admit that. Still, our Spidey senses suggest it is not far away.
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