General Electric Company (NYSE:GE) jumped 2% on Wednesday after Credit Suisse analyst Julian Mitchell added the stock to his “U.S. Focus List.” According to Mitchell, a “significant” number of events could take the stock to a range of $28-$29. On Wednesday, the stock closed at $25.93.
Mitchell maintained an Outperform rating on General Electric with a price target of $31. He noted, however, that the company’s dividend yield of 4%, which is considerably high, could serve as a downside.
The analyst notes that since the initial announcement of the Alstom acquisition in 2014, it is likely the company put various other acquisitions on hold. However, since General Electric has received regulatory approval for its acquisition of Alstom, the company could now pursue other acquisitions that could boost the stock’s overall multiple.
As compared to most of its peers, General Electric is “much more likely” to see higher earnings, given that a growth of 12% in EPS is already “locked in.” Alstom is expected to contribute at least 5 cents per share, and EPS of $0.10 is expected from the Synchrony swap-out.
Mitchell recently visited General Electric’s plant in Greenville and said he got a positive indication of the company’s momentum to increase its gross margin. He expects some visible improvements as early as October 16 when the company announces its Q3 results.
In regards to the healthcare segment, which is 17% of total industrial earnings, Mitchell said there’s little room for any further drop in investor expectations, given the “minimal” profit shown by the segment for several years.
Referring to the oil & gas segment, which contributes 15% of total industrial earnings, Mitchell said the segment offers significant room for cost reductions. The analyst noted General Electric’s planned cost cuts of $0.4 billion in 2016, in addition to 2015’s planned cost cuts of $0.6 billion.
Mitchell concluded that even if the global macro environment for 2016 is weak, there’s limited downside risk to General Electric’s stock due to the factors mentioned above. Also, given that the company’s industrial balance sheet is under-levered, there’s minimal risk of a dividend cut.
Mitchell has rated General Electric nine times total since 2010, earning a 78% success rate recommending the stock and a +9.9% average return per recommendation when measured over a one-year horizon and no benchmark. Overall, he has as a success rate of 62% recommending stocks and an average return of 10.1% per recommendation.
Out of four analysts polled by TipRanks who have rated General Electric within the past three months, two are bullish on the stock and two are neutral. The average 12-month price target on General Electric is $30.50, marking a 17.62% potential upside from where shares last closed.