How Low Oil Prices Could Impact GE Earnings

GE stock had lost more than 6% of its value since January 2, though it has recovered some since. GE supplies a lot of equipment to the oil patch, particularly to the subsea segment, which has been one of the first to slow down as crude prices slide. GE posted revenues of $4.6 billion in its third quarter of 2014 in its oil and gas division, reflecting a year-over-year gain of 7%. Probably no one expects similar performance when the company reports fourth-quarter results.

Unfortunately, GE has been a whipping boy among large companies. Its conglomerate model continues to be unpopular. The argument against its management is that it has tried to run too many disparate businesses. However, the tide has turned modestly in its direction as it sells underperforming assets and presses into promising ones. Although these efforts have not lifted results much, some analysts who follow the company think they will.

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The long and short of the matter is that GE needs the international economies and oil to stabilize for it to be viewed favorably again. The conglomerate still has a massive backlog, which was recently listed as a record backlog. Imagine if oil stabilizes and if Europe, China, Russia and Brazil start to stabilize too. All of a sudden, GE might simply become the perfect company. 24/7 Wall St. has more on the outlook for GE in our bullish and bearish evaluation of GE in 2015.

At the turn of the new year, Deutsche Bank and Bank of America Merrill Lynch made mixed calls for GE. Deutsche Bank downgraded GE to a Hold rating and lowered its price target to $28 from $30. Merrill Lynch maintained a Buy rating and actually raised its price target to $31 from $29.

So far in 2015, the stock’s moving averages have been immaterial. The 50-day moving average currently reads at $25.32 and the 200-day moving average at $25.53.

Shares of GE were up fractionally at $24.14 in the first half of Thursday’s regular trading. The stock has a consensus analyst price target of $28.67, which implies an upside of 19% from Wednesday’s close. Shares have a 52-week trading range of $23.41 to $27.53. GE has a market cap of about $241 billion.

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