Thursday, October 17, 2019 10:25:54 PM
By Luke Lango, InvestorPlace Contributor
Oct 16, 2019, 9:43 am EDT
https://investorplace.com/2019/10/these-3-things-could-push-general-electric-stock-higher/
Struggling industrial conglomerate General Electric (NYSE:GE) attempted to stage a huge rebound in 2019 behind new CEO Larry Culp’s various cost-cutting and debt-reduction initiatives. At first, the rebound got off to a hot start. General Electric stock soared 40% through the first three months of 2019. Ever since, though, the rebound has fizzled out, and GE stock has dropped 20% from those early 2019 highs.
Will the rebound in General Electric stock resume anytime soon? Potentially, yes. But, only if these three things happen.
First, the global industrial economy needs to improve. Second, management needs to keep their foot on the gas in terms of cost-cutting and debt-reduction actions. Third, the company’s lifeline for future growth — the aviation business — needs to sustain healthy growth.
Fortunately for GE stock bulls, I think all three of those things will happen over the next six to twelve months. I believe that General Electric stock can and will rally during that stretch.
GE’s Fundamentals Should Improve
The fundamentals underlying GE stock should improve over the next six to twelve months, and give the stock ample firepower to stage a sizable rally next year.
First, and foremost, the global industrial economy should improve in 2020. Long story short, the U.S.-China trade war has had huge indirect impacts across the global industrial space by reducing business confidence. This has led to reduced corporate investment, which has caused the industrial economy to compress meaningfully.
But, signs are emerging that trade tensions between the U.S. and China are finally starting to de-escalate. If trade tensions do de-escalate, global business confidence will stabilize, which will lead to a rebound in corporate investment levels and breathe life back into the struggling industrial economy. This new life should provide a strong macro tailwind for General Electric stock.
Second, management appears committed to keeping their foot on the gas with respect to cost-cutting and debt-reduction measures. Just this month, GE announced that they would freeze pension plans for 20,000 U.S. employees in a move that projects to reduce GE’s net debt by roughly $5 billion. This is yet another move in the right direction of GE becoming a less bulky, less indebted, slimmer business. So long as management keeps making these moves, then investor sentiment surrounding GE stock should continue to improve.
Third, GE’s critical aviation business should sustain healthy growth for the foreseeable future. Many see aviation as the company’s best business — and with good reason. It’s growing, it’s profitable, and it’s immersed in a market with very few competitors and tons of demand. If the industrial economy does rebound in 2020, then the aviation market should rebound, too, creating a rising tide which should lift all boats in the market, GE Aviation included.
General Electric Stock Can Run Higher
The numbers work out so that — if the aforementioned three drivers emerge in 2020 — then General Electric stock can run towards $13.
Improving industrial economy trends alongside sustained healthy growth in the aviation business will help GE stabilize sales over the next few years. At the same time, continued cost-cutting will pull expenses out of the system. Less expenses on a stable revenue base imply higher profit margins. Simultaneously, leverage reduction will boost investor sentiment, and lead to increased long-term confidence and a higher valuation multiple.
Putting all that together, General Electric has an opportunity to grow profits at a mild pace over the next several years, and expand its valuation multiple back to historically average levels. My modeling suggests 80 cents is a very doable FY21 EPS target. The five-year-average forward earnings multiple is 16. That combination produces a FY20 price target for GE stock of nearly $13.
General Electric stock trades below $9 today. Thus, potential upside over the next 12 months looks compelling.
Bottom Line on GE Stock
General Electric stock isn’t a long-term winner. But, the stock is cheap, and there’s enough good going on here that the stock doesn’t deserve to be cheap anymore. That dynamic ultimately implies that GE stock should rally from here over the next few quarters.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
Recent GE News
- GE Aerospace Board of Directors Authorizes Regular Quarterly Dividend • Business Wire • 09/13/2024 04:48:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 09/05/2024 08:26:27 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 09/04/2024 08:19:42 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 08/20/2024 08:16:14 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 08/14/2024 12:32:12 PM
- Form 4/A - Statement of changes in beneficial ownership of securities: [Amend] • Edgar (US Regulatory) • 08/06/2024 10:41:39 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 08/06/2024 08:09:30 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 08/06/2024 08:09:16 PM
- EVA Orders GEnx Engines to Power Boeing 787 Fleet Expansion • PR Newswire (US) • 07/24/2024 08:00:00 AM
- American Airlines Orders 180 CF34 Engines to Power New Embraer 175 Fleet • PR Newswire (US) • 07/23/2024 12:52:00 PM
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 07/23/2024 10:28:10 AM
- Form 8-K - Current report • Edgar (US Regulatory) • 07/23/2024 10:22:14 AM
- U.S. Index Futures Dip Slightly as Investors Await Major Earnings Reports, Oil Prices Edge Up • IH Market News • 07/23/2024 10:04:07 AM
- British Airways Orders First GEnx Engines for New 787 Dreamliners • PR Newswire (US) • 07/22/2024 04:34:00 PM
- Japan Airlines Signs Deal for GEnx to Power New 787s • PR Newswire (US) • 07/22/2024 03:50:00 PM
- GE Aerospace and Kratos Partner on Small Affordable Engines • GlobeNewswire Inc. • 07/22/2024 09:00:00 AM
- GE Aerospace and Kratos Partner on Small Affordable Engines • PR Newswire (US) • 07/22/2024 09:00:00 AM
- GE Aerospace and U.S. Department of Energy Reach Agreement to Expand Supercomputing Capability for Revolutionary New Open Fan Engine Architecture • PR Newswire (US) • 07/21/2024 05:00:00 PM
- GE Aerospace investit un milliard USD pour agrandir et moderniser ses installations MRO dans le monde entier • Business Wire • 07/19/2024 03:56:00 PM
- GE Aerospace investe un miliardo di dollari per espandere e aggiornare le strutture di manutenzione, riparazione e revisione in tutto il mondo • Business Wire • 07/19/2024 03:54:00 PM
- GE Aerospace investiert 1 Milliarde US-Dollar in die Erweiterung und Modernisierung von MRO-Einrichtungen weltweit • Business Wire • 07/19/2024 01:34:00 PM
- GE Aerospace Investing $1 Billion to Expand and Upgrade MRO Facilities Worldwide • Business Wire • 07/19/2024 11:55:00 AM
- TRIUMPH AWARDED F404 AUXILIARY GEARBOX FROM GE AEROSPACE • PR Newswire (US) • 07/17/2024 01:00:00 PM
- GE Aerospace T901 Engines Accepted by U.S. Army for UH-60 Black Hawk Flight Testing • PR Newswire (US) • 06/28/2024 12:02:00 PM
FEATURED Cannabix Technologies and Omega Laboratories Inc. Advance Marijuana Breathalyzer Technology - Dr. Bruce Goldberger to Present at Society of Forensic Toxicologists Conference • Sep 24, 2024 8:50 AM
FEATURED Integrated Ventures, Inc Announces Strategic Partnership For GLP-1 (Semaglutide) Procurement Through MedWell USA, LLC. • Sep 24, 2024 8:45 AM
Avant Technologies Accelerates Creation of AI-Powered Platform to Revolutionize Patient Care • AVAI • Sep 24, 2024 8:00 AM
VHAI - Vocodia Partners with Leading Political Super PACs to Revolutionize Fundraising Efforts • VHAI • Sep 19, 2024 11:48 AM
Dear Cashmere Group Holding Co. AKA Swifty Global Signs Binding Letter of Intent to be Acquired by Signing Day Sports • DRCR • Sep 19, 2024 10:26 AM
HealthLynked Launches Virtual Urgent Care Through Partnership with Lyric Health. • HLYK • Sep 19, 2024 8:00 AM