Why General Electric shares beat the market today

What happened

Shares in an industrial giant General Electric (EG -0.06%) bucked the market today spending most of it in positive territory, while the S&P500 index did the opposite. The move comes as investors turned to the stock after a period of underperformance following a presentation by Chief Financial Officer Carolina Dybeck Happe at the Morgan Stanley Laguna conference on September 15.

There is no getting 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 shipments were moving toward the end of the quarter. This is something that will likely impact earnings and cash flow timing. In effect, it 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 come close to its implied FCF forecast for 2022.

So what

As such, it was not surprising to see the stock sell off after the presentation, but now the disappointment may have been priced in and value investors may have started to turn to the stock.

GE is not in great shape in the short term. Supply chain issues are hitting its renewable energy, aviation and healthcare businesses, and I think GE is at risk of missing its full-year earnings and cash flow guidance.

Now what

As of now, there is no issue with end demand in aviation and healthcare, and power remains on track for its full year forecast. Instead, GE needs its supply chain issues resolved so it can meet its backlog. Indeed, GE’s total orders increased 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 “catch up” with the profits and cash flow that have been pushed out.

Lee Samaha has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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