General Electric – JPMorgan Swings And Misses?

JPMorgan’s presentation on General Electric Company (GE) from the Framework Member Conference Call.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

We respect your email privacy

Timeless Reading eBook

Also read:

C. Stephen Tusa, CFA

  • Long career covering General Electric and competitors
  • Inside access: Mentioned Jeff Immelt discussing whether or not GE Capital should be jettisoned at a breakfast in 2005.
  • Well thought of on the buy-side – “an analyst you can trust”
  • GE report published in July is 133 pages and is very thorough. I was in awe with his knowledge of the company
  • We believe Tusa’s call is essentially a bet on the strength of the Power market and for the paradigm for that
  • His most credible economic argument is that General Electric, a firm whose Power services are focused on providing “H-Class” gas turbine generators, is ill-placed for a world of renewables.
  • Believes that GE is perennially behind the curve regarding strategic portfolio balancing.
  • Worries that GE’s cash flows are insufficient to cover dividends.

Revenues

General Electric

2020 Assumptions (FWI)

Worst Case: $129.9 billion - 1.2% CAGR Best Case: $146.1 billion - 4.3% CAGR

General Electric

2020 Assumptions (JPM)

Base Case: $131.8 billion - 1.6% CAGR Tusa's argument relies upon projections for gas turbine (GT) market over the next four years.

General Electric

  • In his view:
    • GT market is oversupplied right now – EM buildouts and developed world switch to
    • GE holds largest market share but Siemens is close, Mitsubishi Heavy and an Italian firm also in the running.
    • Increasing competition for business and lower service contract payments cause GE’s Power business to decline at 4%-5% per year in 2019-2020.

General Electric

  • Tusa is probably right about near-term conditions. GE also said 2017-2018 will be weak, partially due to competition and oversupply.
  • His 2019-2020 forecasts rely upon his implicit assumption that heavy-duty gas turbine (HDGT) generation is no longer needed because of renewables’ generation ascendency.

Revenues - GT Demand

  • Europe has seen a rapid fall-off in GT generation since 2010.
  • Siemens, GE’s closest competitor has been affected by this and are skeptical of the health of the (HDGT)...


Continue reading at ValueWalk →