General Electric Company (GE)

[JPetroInc]

GE Stock Continues to Climb Because Investors Are Focused on the Future

https://www.barrons.com/articles/ge-stock-continues-to-climb-because-investors-are-focused-on-the-future-51552924612

By Teresa Rivas - March 18, 2019 11:56 a.m. ET

General Electric stock (GE) is trading higher on Monday as analysts adjust their estimates to the company’s new outlook.

The back story. GE warned investors last week that its full-year 2019 earnings would come in below expectations, yet the stock still closed higher after the news, with investors choosing to focus on other factors as they search for evidence that the company’s turnaround strategy is working. At least there have been more clues to parse as the company has been more open about its insurance division and problems at its power business. The stock is up nearly 40% since the start of the year, even if it’s still off 22.7% in the trailing 12-month period.

What’s new. Barclays’ Julian Mitchell reiterated an Overweight rating and $13 price target on the shares Monday. He lowered his earnings estimates following the company’s updated guidance, leading his free cash flow expectations down in the near term, but he said he still thinks the company’s industrial business can deliver free cash flow of $6.5 billion to $7 billion in 2021, despite projected negative returns this year.

Looking ahead. Mitchell said GE’s equity value will probably remain volatile as investors digest its free cash flow forecast. However, he argues that when the dust settles, the projections beyond this year, in 2021 for its industrial unit, do “not look out of step with the CEO's stated aspiration for a double-digit FCF margin in the long term, or GE's history.” I addition, he sees GE’s Power business turning from free cash flow negative to positive by 2021.

He said that GE Capital “looks worse” after recent updates, and he is “dismayed by the extent of guided net losses in 2019-2020,” which could total more than $1.5 billion, even with a relatively robust outlook for the unit. Still, he thinks asset sales will help and that management is taking seriously a broad range of options to de-risk the business. “Our Industrial divestment estimate of approximately $40 billion should solve for ongoing claims at GE Capital, the pension underfunding, et al, as well as Industrial de-levering.”