GE Stock Is Jumping. Its Cash Pile Is Holding Up, Even in a Tough Year. -- Barrons.com
11:45 AM ET 11/13/20 | Dow Jones
By Al Root
General Electric stock got a boost on Friday after Barclays analyst Julian Mitchell hiked his price target for the shares. The underlying reason for the analyst's move is good news for shareholders, too: GE's balance sheet is in better shape as the global economy improves and as the company's business mix changes.
GE stock jumped 3.1% in recent trading Friday, while the S&P 500 edged up 0.7%.
Mitchell qualifies as a General Electric (ticker: GE) bull. He rates shares Buy and boosted his price target to $11 from $9 Friday morning. The change comes after he hosted GE CFO Carolina Dybeck Happe at a virtual event for Barclays clients.
Mitchell came away from the event believing new management -- including CEO Larry Culp and Dybeck Happe -- have a handle on debt challenges accumulated by past management regimes. "We think the [free cash flow] performance and the state of the balance sheet suggest that even if Covid-19 headwinds persist, the downside floor for GE's share price should be higher," wrote Mitchell.
Analysts expect GE's industrial businesses to burn through roughly $1 billion in the pandemic-affected 2020. Mitchell projects the company will end 2020 with about $25 billion of cash available to its industrial businesses -- cash which can be used to repay debt and restructure businesses.
Mitchell also expects cash flow to improve, easing pressure on the balance sheet in coming years. He projects GE's free cash flow from its industrial businesses will hit $6 billion in 2022. GE's gas power division has made progress, according to the analyst, and aviation free cash flow should rebound from pandemic lows.
GE's renewable energy business, which generates about $15 to $17 billion in sales each year, is also making progress. On Thursday, the company said its Haliade-X wind turbine -- which GE claims is the most powerful offshore wind turbine in the world -- was certified by DNV GL, the largest independent certification body in the world. "This certification provides independent verification that the new turbines will operate safely, reliably, and according to design specifications," said a GE spokesperson in an emailed statement. "This is a key step as it gives customers the ability to obtain financing to purchase the turbines."
But GE's largest business, commercial aviation, still faces headwinds. Commercial aviation demand has been decimated by pandemic. Air travel in the U.S. is down roughly 75% year over year since the beginning of March.
GE stock is down about 20% year to date, worse than comparable returns of the S&P 500 and Dow Jones Industrial Average. But things are looking up for investors more recently. GE shares have risen about 35% over the past month. Positive Covid-19 vaccine news from Pfizer (PFE) boosted all stocks linked to commercial aerospace.
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