General Electric is a multi-business global company established in 1892 and is the world's premier digital industrial company by providing investments, expertise, and infrastructure. It operates in various sectors which include power, health, capital power, renewable energy, aviation, transportation, oil, and gas. (Ge.com, 2017). In recent years the company's performance was not good since it had been reporting weak earnings. From quarter four of 2014 to quarter four of 2015, the company reported five straight declines in its earnings per share. This paper will provide a summary of the entity's 2016 four quarters earnings indicating if they had an effect on its cash flows and liquidity. The views of Wall Street analysts about General Electric's future financial health will also be discussed in addition to my opinion on the company.
General Electric Earnings Report on the Four Quarters
Earnings per share show the amount of money that each share gets when the company's earnings are allocated to the number of outstanding shares. High earnings per share imply that the firm is profitable and this enhances the stock price. During the four quarters of 2016, the company reported earnings per share of 0.21, 0.51, 0.32 and 0.46 for quarters 1, 2, 3 and 4 respectively. To determine if these results were above or below, they are compared with a consensus forecast. Consensus estimates are future predictions about the performance of a security that are created by analysts. General Electric's consensus forecasts for the four quarters March, June, September, and December were 0.21, 0.46, 0.31, and 0.46 respectively. The estimates show that the company met its targets for quarters one and four however earnings for quarters two and three were missed by 0.46 and 0.31 or 10.87% and 3.23% respectively.
The company's quarter one revenues were $27.6 billion, while General Electric second quarter earnings rose to $33.49 billion. General Electric's third quarter reported a decline to $29.27 billion while during the fourth quarter the revenues increased to $33.09 billion. Comparing these revenues to the consensus estimates by the analysts of $27.62bn, $31.82bn, $29.64bn and $33.63bn for the four quarters, the company missed the estimates by$0.02bn, $0.37bn, $0.54bn in quarters one, three and four respectively.
Effect of the Results on Cash Flow and Liquidity of General Electric
General Electric results do not seem to have any effect on neither the liquidity nor the cash flow status of General Electric Company. There is no effect because the company was able to pay out $30b billion to its shareholders in the form of dividends and buying back of its shares. If the company had liquidity problems, it would have opted to reserve the money it paid out as dividends to solve its cash flow issues. Further, the company can offset its weak market segments in the transportation, oil and gas segments through its diversification. The company is also set to sell its capital segment and the assets. The proceeds are likely to improve the cash flows in addition to the cash flows generated by the cash flows from operations.
Wall Street Analysts Opinion on the Financial Health of the Company
As per the analysts, General Electric Company is a well-performing company, and they expect it to continue that trend. They expected the company to outperform the market (FT.com, 2017). Their prediction was that the entity's earnings would grow from 69% to 160% over a period of three years from 2016. On average this would be a $0.53 annual increase in the earnings per share. Revenue was also set to grow by approximately 1.4 times from the current $121.92 billion to $125.65billion in 2017 and ultimately to $127.33billion in the year 2018.
Among 18 analysts in the latest consensus forecast dated March 11, 2017, six still advised those holding the shares of the company to continue holding the stocks. Seven other analysts recommended a buy opinion to investors to purchase the shares of the enterprise while four others indicated the stock performed better than the market as a whole. Only one analyst categorized the company's stock as underperforming implying that it did not match that of others in the sector or that of the market. No analyst advised on the sell option. The analyst's expectation was that dividends would grow by 3.66 %. This consensus forecast among these analysts implies that they give a positive opinion on the company's future financial health.
My Viewpoint About General Electric
Evaluating a multi-segment company like General Electric requires an analysis of the entire company and not individual segments. This is because the company is highly diversified into many segments. A conclusion that the company had not performed well based on the performance of an individual sector or a particular quarter would be erroneous. In 2016, the gas and oil segment's performance was poor however other segments like aviation did well. The combined performance of all the segments indicates the company did perform well as those segments that had a poor performance had their results enhanced by the well-performing sectors. Therefore, in my opinion, the company performed well and has a healthy future financially. The company managed to pay out cash dividends and bought back some of its shares. Also, the company is selling off its capital segment and its assets, something that will benefit the shareholders in the long run.
GE | The Digital Industrial Company | Imagination at Work. (2017). Ge.com. Retrieved 12 March 2017, from http://www.ge.com/
General Electric Co, GE: NYQ forecasts - FT.com. (2017). Markets.ft.com. Retrieved 12 March 2017, from https://markets.ft.com/data/equities/tearsheet/forecasts?s=GE:NYQ
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