Stocks are rarely valued based on the present — investors try to look to the future, and judge a particular stock based on how they think that particular company will perform. That’s why social network stocks have little revenue and negative profitability are valued so (relatively) high — investors are betting the hot startup will (eventually) run a financially sound business.
And that’s why General Electric’s (GE) stock is surging after 5 weeks of trading in 2019.
After a terrible 2018, GE is giving investors hope for the future. The company has undertaken a serious restructuring plan by spinning off or selling non-core segments, in an effort to improve its financial wellbeing after its Capital unit sent the company into disarray. The stock is up about 50% from its 2018-low, as investors think GE is finally righting the ship. Gabelli analyst Justin Bergner agrees with this sentiment, as he maintains his Buy rating on the conglomerate. (To watch Bergner’s track record, click here)
Bergner says, “GE’s stock rallied despite continuing problems in power plaguing 4Q, the potential outlook, and cash flow.” He pointed to a “better than expected finish to 2018 FCF” but was most impressed by the alleviation of “liquidity, liability, and aviation concerns…[which allowed] the stock to begin to close its discount to asset value notwithstanding the sizable continuing problems in power.”
Liquidity is on many investors’ minds when talking about GE, as the company is working to divest itself from non-core segments. The analyst says that GE is able to generate “north of $50B of liquidity for industrial” by using “use the ~$6B of proceeds from Wabtec (cash and stock), a near 50% monetization of healthcare (we see cash of ~$20B plus $18B of assumed debt/pension), and…$12.5B mark-to-market value of BHGE.”
Bergner also commends new CEO Larry Culp, saying he “is taking decisive action to improve liquidity and implement operational discipline in power.” The analyst continues, saying he sees “$12 ps of value in high quality aviation and HC in 2019 post-debt, pension, and other liabilities, and $3 ps from the public proxies for oil & gas and transportation, with $2 ps from power and renewables for our unchanged $17 2019 PMV, which grows to $21 in 2021 as power turns cash flow positive.” Among the “catalysts to reduce GE’s discount to PMV” include “power stabilization, HC liquidity, and clarification on GECS liabilities.”
Even after a horrid 2018, Wall Street is a relatively optimistic on GE. Based on TipRanks analysis of 17 Wall Street analysts there is a Moderate Buy consensus. Of the 17, eight analysts recommend Buy, eight recommend Hold and only one says Sell. There is a $10.36 average price target on the stock, representing a 3% rise from its current level. (See GE’s price targets and analyst ratings on TipRanks)