GE Earnings Were Solid. Wall Street Says It’s All About Cash Flow.
stock looks like it can gain some positive momentum.
The company posted better-than-expected earnings results on Tuesday, but Wall Street appears more excited about the industrial conglomerate’s improving cash flow.
In addition to beating estimates, GE (ticker: GE) raised its full-year free-cash-flow guidance for its industrial operations to a midpoint of $4.3 billion, $800 million higher than the previous midpoint. It was a solid, drama-free earnings print.
“GE’s ‘north star’ continues to be improving [free cash flow],” wrote RBC analyst Deane Dray in a note published Tuesday. He remains bullish on the stock. “The turnaround story and bull case both remain on track.” Dray rates shares Buy and has a $16 price target for the stock.
Free cash flow has been in focus for GE for a long time. “[Free cash flow] has been the fixation for investors since [CEO Larry Culp] took over, and for obvious reasons…It was awful,” wrote Melius analyst Scott Davis in a Tuesday note. He called the increased guidance a “notable and critical positive.”
Culp took over in late 2018 and was charged with turning around GE’s operations. Industrial free cash flow generated between 2018 and 2020 was $1.7 billion, down from about $12 billion generated on average between 2015 and 2016.
Industrial cash flow in 2020, during the depths of the global pandemic, amounted to about $600 million. The $4.3 billion guidance demonstrates things are going in the right direction.
William Blair analyst Nicholas Heymann was also encouraged by the quarter and a little more bullish than Dray and Davis. “GE’s second quarter 2021 results continued to show steady sequential improvement across virtually all businesses and key metrics,” wrote Heymann in a Wednesday report. His report focused on sales growth and profit margin expansion in all of the company’s divisions. Heymann was also happy to see the company’s sale of its aircraft leasing unit approved by European regulators and wrote that the stock has 30% upside from current levels.
Heymann rates shares Buy, but he doesn’t have an official price target. Up 30%, however, would put shares around $17.
Dray, Davis, and Heymann are all more bullish than the average analyst’s price target of $14.68 a share. The average target price for
shares has increased about 0.9%, or 13 cents, since the company reported numbers.
Oppenheimer analyst Christopher Glynn isn’t one of the GE bulls. He rates shares Hold and, like Heymann, doesn’t have a published price target. Still, Glynn wrote Wednesday “steady incrementalism adding up.” He sees some positive changes at the company, like the other three. The turnaround is proceeding even though he isn’t recommending shares to his clients yet.
It’s hard to find GE bears these days. Overall, 67% of analysts rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. What’s more, no one rates GE stock Sell. The average Sell-rating ratio for stocks in the S&P 500 is about 7%.
GE stock is up about 22% year to date.
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