Larry Culp, CEO of General Electric. Boston Globe/Getty Images Goldman Sachs analysts sat down with GE executives on Friday to disc
- Goldman Sachs analysts sat down with GE executives on Friday to discuss the company’s operations and financials.
- The analysts came away “encouraged” by free cash flow and power business momentum at the company.
- GE notched a surprise FCF windfall in its most recent earnings release, posting $4.37 billion in industrial FCF vs. an expected $2.5 billion.
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General Electric could jump roughly 20% to $15 per share amid strong free cash flow and power-business momentum, Goldman Sachs analysts told clients in a note on Monday.
Goldman analysts led by Joe Ritchie hosted a virtual investor meeting with GE’s investor relations team last Friday to discuss the company’s operations.
The analysts said they “came away encouraged by the FCF momentum/Power trajectory” after the meeting. Goldman maintained its “buy” rating for GE and increased its price target to $15 per share from $14.
GE saw its stock fall to an all-time-low below $5.50 per share in May of 2020 as the pandemic hurt results. Since then, the company has mounted an incredible recovery with the stock jumping more than 130%.
Now the conglomerate is getting a boost from analysts ahead of its March outlook call.
In their letter to clients Monday, Ritchie and company noted that risks to GE including pension funding, balance sheet issues, and more are “ring-fenced in the medium term.” This is a blessing for a company that has been continually questioned about its excess debt and pension spending.
However, the main takeaway from Goldman’s meeting with GE seems to have been a clearer picture of what to expect from free cash flow going forward.
“The bottom line is we think GE will beat consensus FCF expectations for 1Q and land within the top end of the FCF range for 2021 (GS: $4.0bn),” the Goldman analysts said.
The group added that the first quarter of 2021’s free cash flow will most likely “benefit from 2020 cash restructuring actions and working capital improvements.”
Overall, the analysts said they “see FCF risk/reward skewed to the upside given our view that travel will snap back in 2H as vaccines become more widely distributed.”
The analysts also said they expect GE’s Power portfolio EBIT to turn positive by 2022 and argued the company has made “significant traction” in its Power Conversion business.
Finally, Ritchie and company said the upcoming 2021 outlook call, which is set to take place in March, will be a “positive catalyst for shares.”
The analysts said they “could see a scenario where GE provides a target year for their high-single-digit FCF margins” or the company could start “outlining the path to double-digit FCF margins,” and “any quantitative context to help frame GE’s longer-term potential could be viewed positively.”
This positivity regarding FCF comes after GE turned in $4.37 billion in industrial free cash flow during the fourth quarter of 2020. The figure was a big surprise after CEO Larry Culp projected just $2.5 billion in FCF for the quarter.
GE traded up 5.2%, at $12.64, as of 1:51 p.m. ET on Monday.