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General Electric: Wait, One Analyst Made It His Top Pick?!?! -- Barron's Blog
DOW JONES & COMPANY, INC. 12:15 PM ET 6/26/2017
Symbol Last Price Change
GE 27.57down 0 (0%)
BHI 53.93up -0.06 (-0.11%)
HON 134.3down +0.31 (+0.23%)
QUOTES AS OF 01:43:34 PM ET 06/26/2017
General Electric (GE) ( GE) has been stinker this year and for much of the past 15 years as well. So why is Barclays analyst Scott Davis making it his top pick?

Not a lot has gone right for General Electric(GE) in recent years. Its stock has underperformed the S&P 500 over the past one-, three-, five-, 10- and 15-year periods, and is down 13% so far this year. Nothing seems to have been able to reverse that underperformance, not the offloading of much of GE Capital, or the agreement to buy Baker Hughes(BHI) and combine it with its own energy business. And it recently cost CEO Jeff Immelt his job.

So why is Barclays' Davis making General Electric(GE) his top pick? I'll let him explain:

General Electric (GE) is our new Top Pick, replacing Honeywell International(HON) . Portfolio simplification, outsized cost-out, improving cash flow dynamics, and a successful integration of Baker Hughes(BHI) remain key drivers of GE stock. The announcement that long-time CEO Jeff Immelt will be stepping down on August 1 was an important step for GE, as it became increasingly clear that GE needed a new direction. New CEO John Flannery will be taking a deep look at the portfolio to determine if changes need to be made (they do, we think). This, combined with a bottom-quartile valuation, significant cost-out program, better cash generation, accretion from BHI, and a top-decile dividend yield continue to make GE one of the most compelling stories in our universe. Bears point to an unrealistic earnings ramp through 2018 and weak FCF generation, but we believe the cash deficit is largely explainable given structural changes in the business and cyclical headwinds from new product introductions. Even bearish expectations support a nice earnings ramp and we see forecasts as too low.

Shares of General Electric(GE) have ticked up 0.1% at $27.58 at 12:05 p.m. today, leaving 30% upside to Davis' $36 price target. Baker Hughes(BHI) has advanced 0.1% to $54.04, and Honeywell International(HON) has risen 0.3% to $134.36. The Industrial Select Sector SPDR ETF ( XLI) is up 0.1% at $64.45.

More at Barron's Stocks to Watch blog, http://www.barrons.com/stocks-to-watch