Shares of General Electric (NYSE:GE) underperformed in 2018, and analysts are split on whether to get slightly more optimistic about the stock, while others argue that the rest of the year will lack further. Count Oppenheimer analyst Christopher Glynn among the former.
Glynn upgrades the industrial giant’s stock from Underperform to Perfom, based on potential for portfolio plan to unlock some value, and diminish liabilities. (To watch Glynn’s track record, click here)
Glynn commented, “GE can reduce net leverage by $25B by 2020 (vs. 2018 target of $50B), from Healthcare liability transfer (debt and pension) allocation of $18B gross (perhaps $8-10B net of, say $2-4B cash and perhaps $6B of pension plan assets) and meaningful planned liquidity from break-up moves. GE Capital should be decently situated to fund long-term care insurance and potential cash impact of recent $1.5B EMC reserve (litigation related to former subprime business), considering $3B 2019E GE parent contribution, $25B of GEC asset sales (book value unknown), and current cash and short-term investments position ($31B) against (and in excess of) maturities of excess debt left over from prior sales of about $200B of GEC assets. If GE needs to make incremental capital injections, say $2-3B here or there a couple more times, the opportunity for significant scale liquidity from BHGE and Healthcare (and WAB shares to a more rounding amount) suggests to us that liquidity is no longer a sound basis for an Underperform rating […] Valuation could be a remaining source of Underperform, but we think that case now also too strained.”
It appears the voice of the Street backs Glynn’s sidelined vantage point on the engine maker. Out of 12 analysts polled in the last 3 months, 8 remain sidelined, while 3 are bullish and 1 is bearish on General Electric stock. With a return potential of 15%, the stock’s consensus target price stands at $16.29.