General Electric (GE) reported fourth-quarter results that blew well past our revenue assumptions for the year. However, it fell slightly short of our below-consensus adjusted earnings per share estimate and, more important, exceeded our GAAP EPS expectations. Top-line growth was broad-based and exceeded our full-year expectations across all seven of GE’s industrial segments; we expected industrial revenue of $118.4 billion versus $121.6 billion of actual results. While we generally don’t project quarterly adjusted EPS, our most recent full-year 2018 adjusted EPS expectations implied $0.19 against $0.17 of actual results (versus $0.22 for consensus estimates). Adjusted industrial free cash flow generation of $4.5 billion was the most important item this quarter. Free cash flow swung positive thanks to positive earnings as well as better payables performance throughout the year and inventory liquidations.
While we evaluate the various puts and takes in our model (including some additional short-term GE Power headwinds offset by positive developments on the GE Capital liabilities front), we don’t anticipate materially changing our fair value estimate of $13.80 per share. We also maintain our narrow moat, stable trend, very high uncertainty, and poor stewardship ratings. Although the earnings call was light on details regarding the future and lacked the guidance analysts wanted to hear, we view the company’s results, as well as its free cash flow generation, as a welcome net positive and a leading indicator that the future is brighter than GE’s recent past. While the stock has rallied about 50% since it last tripped 5 stars on Christmas Eve, we continue to demand a wide margin of safety before investing.
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Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.