General Electric Jumps On Earnings Beat, FCF Guidance 'Well Ahead Of Buy-Side Expectations'

General Electric Company GE shares were rocketing higher Wednesday after the company beat analyst estimates for third-quarter revenue and reported a surprise profit.

What Happened: GE reported adjusted third-quarter earnings per share of 6 cents, beating analyst estimates of a 4-cent loss. Quarterly revenue of $19.42 billion also exceeded analyst expectations of $18.73 billion. Revenue was down 16.8% from a year ago.

Related Link: Goldman Sachs Calls General Electric The 'Ultimate Self-Help, Vaccine Leverage Story'

Aviation revenue dropped 39% in the third quarter, and health care revenue was down 7%. GE reported $514 million in industrial cash flow, down from $650 million a year ago.

Looking ahead, CEO Larry Culp said GE is targeting industrial free cash flow of $2.1 billion in the fourth quarter and expects that cash flow to remain positive in 2021.

Why It’s Important: BofA Securities analyst Andrew Obin said in a note that GE’s earnings and free cash flow numbers are encouraging.

“Net-net, 2H FCF outlook of ~$3.0bn compares favorably with our prior $2.7bn forecast and we believe was well ahead of buy-side expectations,” the analyst said. 

GE’s order log is still relatively weak, and the company is setting aside reserves following the SEC’s recent announcement that it is considering a possible civil suit against GE related to the company’s insurance business, he said.

Industrial orders dropped 28% in the third quarter. GE reserved about $100 million for all ongoing SEC investigations.

Overall, Obin said GE’s quarter was better than expected, and he’s bullish on the stock given its operations improvements, attractive valuation and medium-term FCF trajectory.

BofA has a Buy rating on GE with an $11 price target. 

GE Price Action: GE shares were trading 8.66% higher at $7.72 at last check Wednesday. 

Benzinga’s Take: The earnings beat was much needed for GE investors after the company disclosed it received a Wells notice from the SEC indicating a potential lawsuit earlier this month.

GE investors are likely growing tired of hearing about how a turnaround is just around the corner after years of underperformance and lackluster cash flow and earnings numbers, and the stock remains a show-me story at this point.

Photo by Bubba73 via Wikimedia.