Wall Street buzz is pointing to Berkshire Hathaway, the hedge fund firm steered by legendary guru Warren Buffett handpicking General Electric Company (NYSE:GE) as its next financial Cinderella story.
RBC Capital analyst Deane Dray comments from the sidelines, musing that in more ways than one, “GE’s current situation fits the profile of an ideal Warren Buffett investment.”
“Berkshire Hathaway has a history of investing in storied businesses struggling at steep valuation dislocations,” Dray highlights, aware that this industrial company has built an empire on legacy: “GE is a 125-year-old iconic industrial brand with strong assets, market leadership in many industries, and a business model that Mr. Buffett understands.”
However, though the grapevine chatter sent shares on a 4% bump last Tuesday with word of the Wizard of Omaha coming in to save the day, Dray still stands with eyes open: “We caution that any investment by Mr. Buffett would potentially be ‘expensive capital,’ as he is likely to extract favorable terms from GE.”
“In effect, this Berkshire investment scenario would essentially be in lieu of an equity raise, and would likely be similarly dilutive to existing GE shareholders,” warns the analyst.
As such, the analyst maintains a Sector Perform rating on GE stock with a $16 price target, which implies a just under 19% upside from current levels. (To watch Dray’s track record, click here)
Melius Research analyst Scott Davis approaches the industrial giant from a reassured, upbeat perspective on back of the Buffett rumors, wagering that the hedge fund guru is poised to buy a holding in GE.
Therefore, anticipating a position from the wizard himself “in the low-to-mid-teens billion dollar range,” the analyst rates a Buy on GE stock with a price target of $35, which implies a 160% upside from current levels. (To watch Davis’ track record, click here)
Notably, should rumor spring to Wall Street life, Davis anticipates Buffett’s firm would own 10% to 15%, a “back-door equity raise for GE.” Not only could this move prove “instantly stabilizing” to GE’s credit, the analyst likewise recognizes potential for “cash-flow breathing room.”
J.P. Morgan analyst Stephen Tusa does not buy into the bullish craze here, confused as to why this Wall Street buzz validates an upturn in GE shares.
The fundamentals simply are not there for the latest jolt of confidence seen among investors. After all, Tusa explains, if GE’s picture is so rosy, would the company require Buffett’s save in capital in the first place?
No, in fact, Tusa now holds even “higher conviction” in his bearish case, as he continues to reiterate an Underweight rating on GE stock with an $11 price target, marking an 18% downside from current levels. (To watch Tusa’s track record, click here)
Shot in the dark or is Buffett ready to get his hands on a GE investment? Time will tell as to whether the bulls win, and Berkshire saves the day for a wavering empire.
Overall, TipRanks indicates a predominantly neutral analyst consensus circling the struggling industrial giant- a stock that has suffered the lowest performance in the Dow Jones in the current quarter. Out of 14 analysts polled in the last 3 months, 2 are bullish on GE, 9 remain sidelined, while 3 are bearish on the stock. With a healthy return potential of nearly 18%, the stock’s consensus target price stands at $15.90, marking optimism is baked into these sell-side analysts’ expectations in the grander scheme.