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GE to Report Q2 Earnings: Will it Pull Off a Surprise?

Industrial goods manufacturer General Electric Company GE is scheduled to report second-quarter 2017 results before the opening bell on Jul 21. In the last reported quarter, the company’s operating earnings beat the Zacks Consensus Estimate by 4 cents. Over the trailing four quarters, General Electric reported an average positive earnings surprise of 9.4%, beating estimates thrice and matching them once. Let’s see how things are shaping up for this announcement.

Key Factors in the Quarter

With a reshuffle in its top management, General Electric is aiming to focus on its core industrial operations after completing the GE Capital exit plan. John Flannery, the current President and CEO of GE Healthcare would take the helm as the CEO from Aug 01, 2017, and Chairman and CEO effective Jan 01, 2018, replacing Jeff Immelt. Flannery has led complex financial and industrial businesses of General Electric across the world and is likely to capitalize on his rich experience to fuel its growth engine. Although the change in top management is yet to be materialized, it is likely to create a buzz in the market and attract favorable deals for the company, thereby improving its long-term growth.   

At the same time, the company is selectively acquiring assets to boost its Industrial Internet vision and improve the top line. General Electric is also focusing on the commercialization of the Predix software through periodic updates and new capabilities to augment its revenues. Predix is designed to add intelligence to the Internet of Things applications. It helps companies to connect their machines, data and people and run industrial-scale analytics. The combination of machine connectivity with a data lifecycle management platform powered by engineering simulation helps diverse firms design their products for the Industrial Internet in the best way possible. Consequently, it is likely to generate incremental revenues for the company.

Further, the merger of General Electric’s Oil & Gas business with Baker Hughes Incorporated is likely to improve segment sales with a complementary portfolio of operating assets and integrated offerings. While General Electric possess unique capabilities in fullstream oil and gas manufacturing and technology solutions spanning across subsea & drilling, rotating equipment, imaging and sensing, Baker Hughes has proven expertise in drilling & evaluation and completion & production services. However, Baker Hughes has a significantly lower operating margin than General Electric, which can act as a big deterrent to its plans to improve overall operating earnings.  

Despite prudent steps to limit its financial exposure by divesting GE Capital assets, General Electric is still susceptible to various market risks. The company’s objectives of simplification and productivity improvement pose operational execution risks as well. For a company as large as General Electric, the additional revenues needed for growth are quite large, posing a challenge to developing businesses on such a vast scale.

Earnings Whispers

Our proven model does not conclusively show that General Electric is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% as both are currently pegged at 25 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

General Electric Company Price and EPS Surprise


General Electric Company Price and EPS Surprise | General Electric Company Quote

Zacks Rank: General Electric has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

United Technologies Inc. UTX, with an Earnings ESP of +2.26% and a Zacks Rank #3.

3M Company MMM, with an Earnings ESP of +1.16% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fifth Third Bancorp FITB, with an Earnings ESP of +2.38% and a Zacks Rank #3.

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