General Electric Share Price Looks Cheap, Says Credit Suisse

In a report published on today, Credit Suisse analyst Julian Mitchell reinstated coverage on General Electric (NYSE:GE) with an Outperform rating and a $30 target price, which represents a potential upside of 17% from where the stock is currently trading.

The following bullets contain some highlights from this report:

  • Although GE is making good progress on cost takeouts with ‘Simplification’ efforts so far in 2014, many of these benefits are being offset by ‘Mix’ (we estimate ~40bps drag). For 2015 though, we believe mix headwinds from Wind, Subsea Oil & Gas, and GEnx shipments should reverse (Thermal will still be challenging). We forecast ~70bps of Industrial margin growth in 2015 after ~40bps in 2014.
  • In light of various portfolio changes, GE looks on track to hit a 75 / 25 EPS split of Industrial/Capital in 2016, which should support the valuation multiple. There is some skepticism among investors as to whether this split can be achieved, given the volatility in P&W earnings. We highlight that non-P&W Industrial earnings (70% of total) are remarkably steady, growing at a 10-11% CAGR since 2010. We expect this to continue through 2016, given a solid outlook for commercial Aero, and improving onshore O&G demand.
  • We think the current GE share price implies a midteens 2016 P/E multiple for the Industrial businesses, which looks cheap given the high share of profits accruing from aftermarket (80-90%). 2016 would be the 6th year of this up-cycle, by which time we think services / AM businesses should/will be valued more highly than cyclical assets (GE’s segment profits barely declined during the last downturn).

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Julian Mitchell has a total average return of 6.7% and a 68.8% success rate. Mitchell has a 15.7% average return when recommending GE, and is ranked #981 out of 3263 analysts.

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