PALO ALTO, Calif. (CNN/Money) -
On Thursday, General Electric said there was weakness in its plastics division and analysts cut their earnings estimates. Friday, GE management said they would hit their numbers.
Confused? Don't be.
Here's the one salient -- and clear -- fact to be gleaned from it all the conflicting reports: GE isn't growing much. Neither is the global economy.
GE (GE: Research, Estimates) is great for headlines. With a market capitalization of just under $300 billion, it's the largest U.S. company (only Microsoft, Pfizer and Exxon Mobil, in that order, come close). And it's one of the most widely held stocks, both by institutions and individuals.
Thus, on Thursday, when GE released data showing weakness in its plastics unit, its stock fell 87 cents, bringing the broader market down with it. On Friday, when GE affirmed its existing forecasted range of earnings estimates, its stock came back about 30 cents in midday trading, hauling along the Dow and S&P 500 with it.
Some thoughts. GE's gain on Friday didn't even make up for half its slump on Thursday. Even though GE didn't revise downward its estimates as some analysts had predicted, the stock retained most of its Thursday losses.
Might that be because investors are looking anew at GE's numbers?
GE is forecasting 2003 earnings of between $1.55 to $1.70 per share. At its mid-point, $1.62, GE would achieve 7.2 percent earnings growth for the year. At its low end, the growth would be a sluggish 2.6 percent. (The Wall Street consensus is for $1.60.)
This from a company that has averaged 13 percent earnings growth during the past five years.
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In other words, the growth isn't impressive because the economy isn't impressive. Some say GE isn't a good proxy anymore for the U.S. stock market. It faces too many specific challenges, like performance in its power unit.
Well, it's a similar story at Cisco, where forecasted earnings for its year ending in July 2004, are a puny 8.5 percent.
Wall Street analysts, typically, don't know what to make of GE's stock. I stumbled across a painfully amusing passage in a report from Credit Suisse First Boston where the analyst notes the firm's historical price targets for GE compared with GE's actual stock price.
Since July 2000, the firm has consistently lowered its price target, always keeping the target above the market price.
Examples: With GE at $52, CSFB's target was $60; at $38, the target was $54; at $40, the target was $46, and so on.
Friday, with GE's stock hovering around $30, CSFB raised its target from $28 to $30.
In other words, your guess is as good as theirs.
The news isn't all that good, but you wouldn't know it from looking at the stock market. Perhaps investor enthusiasm can become a self-fulfilling prophecy. Perhaps.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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