GE

Publicly traded companies mentioned herein: Baker Hughes Inc (BHI), General Electric Company (GE), Rolls-Royce Holdings PLC (RR/ LN), Siemens AG (SIE GR), Triumph Group Inc (TGI)

Highlights

General Electric (GE) is widely covered on the Street and the presenter said, “95% of the time, doing detailed work on a company like GE isn’t a good way to spend time; however, there is an interesting opportunity at this time given GE’s recent transformation over the past 18 months”. He is short the stock at this time (~$30) and explained that exiting the finance business has, despite “a ton” going on (i.e., numerous acquisitions, including the nearly $10 billion acquisition of Alstom), made it easier to evaluate the company’s remaining business lines and financial performance. At this time he is “pretty bearish” on almost all of GE’s businesses, and he sees some accounting issues brewing that are likely to become more of an issue over time because cash flow conversion is poor. The stock generally moves between a “high level transformation” narrative and uncertainty about “what GE will (or can) do now/ next?”, and if his assessment of the setup is accurate, expectations are likely to be revised lower due to: the Alstom integration disappointing the market, no balance sheet optionality, earnings quality deteriorating further, and 2018 Street EPS forecasts of $1.90 - $2 converging on the presenter’s ~$1.60 estimate. Additionally, FCF per share should be in the $1.10 - $1.20 range and investors are not likely to be willing to underwrite the business at almost 30x that number (20x would be more reasonable, suggesting the stock could decline to the low-$20s).