We are downgrading our recommendation on GEI from 1-Sector
Outperform to 2-Sector Perform.
GEI shares performed well last year with strong financial results and
dividend growth. Valuation expanded as investors gained comfort with
the outlook for an increased reliance on infrastructure relative to
services in the business mix.
The stock had another leg up following the acquisition of oilfield
services company OMNI. Accretion from the deal and the
accompanying dividend increase helped boost the shares to new highs.
We believe the stock may pause this year as investors monitor
performance in the services business and determine the extent of new
growth and/or cash flow volatility OMNI may introduce.
GEI shares have reached valuation levels comparable to infrastructure
companies and much higher than most services companies. Risks and
rewards are now balanced rather than tilted to the upside in our view, and
we are changing our investment recommendation accordingly.