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GE – Market expectations are for Uniform ROA to expand, but management may be concerned about their lean transformation, margins, and orders

July 7, 2021

  • General Electric Company (GE:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 33.0x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about their lean transformation, Power segment margins, and customer orders

  • Specifically, management may lack confidence in their ability to identify inconsistent processes, maximize value through lean transformation and decentralization, and capitalize on growth opportunities, particularly with their Healthcare segment. Moreover, they may be concerned about the potential of CFM International’s LEAP engine and service agreements with Southwest and Scandinavian Airlines and the impact of pandemic headwinds on services growth. Furthermore, management may lack confidence in their ability to transition to equipment projects that provide a better risk-return tradeoff and improve Power segment margins. Additionally, they may be concerned about the decline in orders in their Aviation services and Power equipment segments, and they may lack confidence in their ability to further reduce their total debt and fund their pension plan