GE Earnings: Smashes Through Our Expectations, but Long-Term Outlook Unchanged

Narrow-moat-rated General Electric’s GE first-quarter results were superb, materially outpacing our expectations. We were hoping to see over $13.1 billion of adjusted revenue (sale of equipment and services but excluding insurance). GE cruised past this result with $13.7 billion of adjusted revenue, a 17% year-on-year increase. More impressive, we were expecting about $0.00 of adjusted EPS, and GE posted $0.27, meaningfully over our estimate and almost double that of FactSet consensus, as we’ve been modeling most of our earnings growth in the fourth quarter. This was an exceptional result, as adjusted EPS during the quarter rose by $0.36 from last year’s first quarter. Perhaps most encouragingly, GE posted its first positive free cash flow figure in the first quarter since 2015, long before CEO Larry Culp took the helm.

Even so, nothing in GE’s latest print materially alters our long-term view of the stock. We raise our fair value estimate to $110 from $108 due exclusively to time value of money. Management raised the bottom end of both its adjusted EPS (now $1.70-$2.00) and free cash flow guidance (now $3.6 billion-$4.2 billion), though we were already modeling toward the top end of both ranges at $1.95 and $4.1 billion, respectively. We think there’s probably some conservatism baked into these numbers, but given the uncertain macroeconomic environment and most of the year remaining, we hesitate to move ahead of the company’s guide, for now.

That said, demand remains very robust. In fact, it’s growing. GE’s total book/bill (orders divided by revenue) rose to an outstanding 1.29, with renewable demand leading the way with a 1.9 ratio. Clearly, the Inflation Reduction Act has promoted demand.