By
Bhushan Akolkar
April 12th, 2024
General Electric stocks have received a promotion from a Hold to Buy rating from a UBS analyst and have increased in response.
Stocks for popular American auto manufacturer, General Electric (GE) has jumped in response to a bullish rating. In a note to investors, UBS financial services company analyst Markus Mittermaier promoted GE stock from a Hold to Buy rating, also increasing his target estimate by about 26% from $11.50 to $14. In response, on Wednesday, GE stock climbed by about 1% as Mittermaier said in the note that he believes “the stock is at a positive inflection point into 2020.”
So far in 2019, GE has performed quite impressively, ensuring returns higher than 50% year-to-date (YTD) and has pulled in 17% in the last three months. Even with that, analysts are usually not in the habit of giving “Buy” ratings very often. Mittermaier noted:
“We question the depth of which consensus captures the ongoing GE evolution. Analyzing GE is not trivial and requires a detailed segment level analysis. This is what we have done. Our view is based on a multitude of proprietary data.”
In Mittermaier’s note running about 158 pages, the analyst goes into detail about why there is such a divided outlook over whether or not GE stock should be bullish or bearish. Of all GE divisions, GE Power seems to be the weakest link and on average has been negative in 2019. Mittermaier doesn’t shy away from this and even doubles down on the possibility that next year, GE Power will not do much for the conglomerate.
GE Aviation, on the other hand, has been fantastic and has performed better than other divisions. Mittermaier says that GE Aviation’s performance, dwarfing others, might be the major factor driving estimates higher. It is important to note that at the Paris air show held months ago, GE Aviation pulled in new orders worth $55 billion.
The analyst also specifies that since CEO Larry Culp took charge of affairs last year, there has been an impressive focus on improving the company’s cash flow and debt repayment. Culp has made quick moves in raising cash for GE and sold a few somewhat ignorable assets, including selling GE’s biopharma arm to Danaher for $21 billion. Mittermaier says that to a large extent, this has informed his bullish forecast on GE.
There might however be a bear case for GE. The company has a huge power business which is supposed to be an easy catalyst for growth. However, market analysts believe that the market for fossil-based power equipment is declining quite considerably. On some level, both bulls and bears seem to agree that this is not a good look.
Mittermaier, however, believes that especially with the moves Culp has made so far, GE’s earnings per share could be up to $1 by 2022. The analyst forecasts that there will be a 12% growth with cash flow hitting $2.3 billion in 2020 and 29% growth in 2021.