General Electric (GE) Has Morphed Into a ‘Show Me’ Story; RBC Capital Weighs In

The market has divided itself into two camps. The bulls argue that the worst is behind General Electric (NYSE:GE) as it started focusing on getting the business growing again. The bears argue that the market is too optimistic about GE’s recovery, which could take a long, long time. RBC Capital analyst Deane Dray has found himself in the middle.

On Tuesday, the industrial giant delivered its long-awaited breakup plan. GE will spin off its health-care division, separate out its interest in its Baker Hughes energy business and take additional steps to shrink GE Capital.

Dray commented, “The plan arguably lifts the strategic uncertainty that has kept the story in limbo for the past year. Much of the focus can now shift to tracking GE’s execution of this sweeping transformation. That said, bear in mind that Power still remains mired in a protracted secular contraction for the next year or two. A lot has to go right for this plan to be successful, and the markets need to remain favorable for these divestitures to realize attractive valuations. As for the outsized 7.8% GE stock reaction on Jun-26, we attribute the move mostly to the cathartic relief that a definitive plan has finally been announced and one with seismic implications.”

The analyst continued, “To be clear, we do not see how this breakup unlocks significant value in the stock. The quick math on the announced divestitures points to roughly 40% EBITDA dilution, without factoring in potential upsized cost savings. But some of the negativity that had been such an overhang on GE should now be lifted by this news, helping to drive the stock towards our sum-of-the-parts valuation of $15, implying 9% upside […] With the breakup plan now revealed, the next step is for GE to show that it can effectively execute over the next several years.”

Net net, Dray reiterates a Sector Perform rating on General Electric, with a price target of $15, which represents a potential upside of 8% from where the stock is currently trading. (To watch Dray’s track record, click here)

Wall Street believes Dray is smart to play it safe when it comes to GE’s prospects ahead, as TipRanks analytics reveal the stock as a Hold. Out of 13 analysts polled in the last 3 months, 3 are bullish on General Electric stock, 9 remain sidelined, and only 1 is bearish. With an upside potential of nearly 17%, the stock’s consensus target price stands at $16.29.

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