Right now, 2021 is shaping up to be the year of shortages. Labor is hard to find, shipping costs are rising, and industrial manufacturers are scrambling to find parts. Persistent supply chain issues will impact third quarter earnings, but they are not expected to derail the industrial bull market.
William Blair analyst Nicholas Heymann warned on Tuesday that
(Ticker: GE) third quarter results will be affected by supply chain issues. Wall Street is forecasting 46 cents in earnings per share on $ 19.3 billion in sales in the third quarter of 2021.
The warning appears to have little impact on the stock of GMOs. Shares are up 0.8%, to $ 10.80, on recent trading. The
Dow Jones Industrial Average
are both up 1.2%.
“The preponderance of challenges in the industrial operating environment has grown significantly since the start of the summer,” Heymann wrote in a research report. For GE, he points out that its healthcare division is in high demand but is struggling to find parts. “The same applies to GE Aviation,” he added. He now sees GE’s defense business grow by high single-digit percentage points in 2021, down from earlier expectations of a low double-digit rate.
GE seems to be in the same boat as everyone else.
(MMM) and manufacturer of electrical components
(ETN) are just three of the top companies that have all warned of cost inflation and supply chain issues in recent weeks.
GE shares have been stable over the past month, but FedEx,
and Eaton fell about 18%, 11% and 9%, respectively. Some of this bad news from the supply chain is creeping into the industrial and transportation sectors.
Still, Heymann is a bullish rating of GE, shares Buy, adding in its report that “the outlook for the company remains very bright.” GE’s aviation business is improving and Heymann is optimistic that GE’s renewable business will benefit from green policies and carbon emission reductions. Heymann does not have a target price for GE shares.
About 65% of analysts cover GE Buy rate stocks. The average purchase rating ratio for S&P 500 stocks is approximately 55%. Over 70% and 65% value FedEx and Eaton Buy stocks, respectively. Wall Street still sees a lot of potential in the big industrial names. 3M is the exception. Only about 10% rate its Buy shares.
The challenge for 3M, and the rest of the industrial companies, will be to show investors that they can handle supply chain issues and lay the groundwork for a better 2022.
So far in 2021, GE shares have risen more than 20%, better than the respective 14% and 11% returns of the S&P and the Dow. Better demand from the Covid-induced recession has helped many industrial stocks outperform the broader market.
Write to Al Root at [email protected]