Impressive Turnaround Puts General Electric Stock on the Right Track, Says Analyst

Stock Market

The markets were in turmoil this week, with all three major indexes in the red. The specter of further European lockdowns amid rising coronavirus cases, the uncertainty surrounding the upcoming US election, and the mixed earnings results from the FAANG group, all resulted in Wall Street’s worst week since March.

Among the very few outliers, shares of General Electric (GE) have managed to weather the market storm, after investors applauded the industrial heavyweight’s surprisingly solid earnings display.

Specifically, GE delivered 3Q revenue of $19.4 billion, beating the Street’s forecast by $460 million. Non-GAAP EPS of $0.06 came in ahead of the estimates by $0.09.

The highlight, though, appears to be GE’s improving industrial FCF (free cash flow). From a loss of $2.1 billion in Q2, FCF turned $514 million positive and the trend is set to continue in Q4. GE anticipates positive Industrial FCF of $2.5 billion. The company reiterated it is on track for Industrial FCF to remain positive in 2021.

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After what has been a difficult year, the latest financial results offer some welcome respite. Rising debt, furloughs, and a grounded aviation industry have all played their part in depressing the share price (down by 33% year-to-date). 

For RBC analyst Deane Dray, the “quicker than expected FCF turnaround” boosts the bull case for the industrial giant.

“GE continues to manage through the tumultuous COVID macro, achieving an impressive 3Q20 operating beat. Cash flow remains the most important operating metric for GE, and FCF upside this quarter and management’s increased confidence in cash generation for 4Q20 and 2021 was the catalyst for the rally in the stock on Oct-28,” the analyst said. “So, while the multi-year turnaround at the company remains a “game of inches”, Larry Culp and team look to have ample runway for wringing more working capital efficiencies across the company to materially improve GE’s cash generation potential.”

Accordingly, Dray sticks to an Outperform (i.e. Buy) on the shares along with a $9 price target. Investors could be pocketing gains of 21%, should the figure be met over the next 12 months. (To watch Dray’s track record, click here)

Overall, opinions on the Street are split when evaluating GE’s prospects, but the pendulum is swinging the bulls’ way. 6 Buys and Holds, each, add up to a Moderate Buy consensus rating. With the average price target set at $8.77, the analysts forecast upside of 19% in the year ahead. (See GE stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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