What happened
Shares in General Electric (GE -3.19%) were up by almost 5% by midday. The move comes as the market digests the company's earnings report the day before.
It's not that the results were excellent overall. Management maintained its expectation for full-year revenue growth toward the low end of its guidance range of high single-digit growth and lowered its full-year adjusted earnings-per-share (EPS) guidance to $2.40 to $2.80 from its previous range of $2.80 to $3.50.
Moreover, GE HealthCare's segment profit guidance was cut to "at least" $2.6 billion from previous guidance for $3 billion. Meanwhile, GE Renewable Energy is now expected to lose a whopping $2 billion in 2022.
On a more positive note, GE Power is on track with its earnings expectations, and GE Aerospace is highly likely to at least beat the midpoint of management's expectations for $3.8 billion to $4.3 billion in profit this year. The reason is that management ramped its segment margin expectation to high teens from mid-teens but maintained sales-growth expectation for above 20%.
So what
The positive news on GE Aerospace and GE Power wasn't enough for the company to maintain earnings guidance. Still, what cheered the market was management's assertion that it would hit $4.5 billion in free cash flow (FCF) this year. It's a figure that many investors suspected GE would struggle to hit after CFO Carolina Dybeck Happe told investors to expect third-quarter FCF to be similar to the $162 million reported in the second quarter.
However, in the end, the figure came in at $1.2 billion for the third quarter, meaning GE needs $4 billion in the fourth quarter (a figure in line with previous years' performance) to hit the target.
Now what
The full-year FCF guidance highlights just how cheap GE stock is now -- with a market cap of $82.5 billion -- and investors appear to have reacted accordingly. Admittedly, these weren't high-quality earnings, but they were enough to demonstrate the value opportunity with GE stock.
