What happened
Shares in industrial giant General Electric (GE 4.60%) bucked the market today by spending most of it in positive territory, while the S&P 500 index did the opposite. The move comes as investors moved into the stock after a period of underperformance following a presentation by CFO Carolina Dybeck Happe at the Morgan Stanley Laguna Conference on Sep. 15.
There's no way to get around the fact that the presentation was disappointing. In a nutshell, Dybeck Happe told investors that GE's supply chain challenges were ongoing, and equipment deliveries were moving to later in the quarter. That's something likely to impact earnings and the timing of cash flows. Indeed, she prepared investors to expect third-quarter free cash flow (FCF) to be similar to what it was in the second quarter. As such, it's hard to see how GE can get close to its implied FCF guidance for 2022.
So what
As such, it was no surprise to see the stock sell-off after the presentation, but now the disappointment has possibly been priced in, and value investors might have started moving into the stock.
GE is not in great shape in the near term. The supply chain issues are hitting its renewable energy, aviation, and healthcare businesses, and I think GE is in danger of missing its full-year earnings and cash flow guidance.
Now what
As yet, there's no issue with end demand in aviation and healthcare, and power remains on track for its full-year guidance. Instead, GE needs its supply chain issues to clear up so it can deliver on its backlog. Indeed, GE's total orders were up 8% on an organic basis in the first half. When its supply chain issues eventually ease, and GE is better able to deliver products, it should be able to play "catch up" with earnings and cash flow that have been pushed out.
