The Bank of GE.
That’s how we should refer to General Electric (GE). After all, investors view its stock as a reflection of its collapsing Capital unit, not its manufacturing prowess. For example, while revenue has remained largely stable over the past few years, the stock has decreased more than 70% since the beginning of 2017, largely as a result of poor performance from its financial division. But things are looking better for the company; after bottoming out at $6.66 a share in December, the stock is up about 30%.
William Blair analyst Nicholas Heymann does not see this as a fluke, and has reiterated his Buy rating for the company. (To watch Heymann’s track record, click here)
Heymann senses that “prospects are rising for a possible material expansion of the sale of noncore GE businesses,” which would help the company turn focus back to what it has found success in. As a result, the analyst increasingly “believe(s) GE’s risk profile is likely to significantly improve as uncertainties regarding GE’s financial leverage, litigation and government investigations, unfunded liabilities, and operational turnaround plans for Power are likely to emerge over the next few months.”
On GE’s plan to IPO its Healthcare unit, the analyst believes “there is a rising likelihood [the company] may accelerate the timing and size of its original plans for the IPO.” This would serve as a boon to the stock, as the company would show its not only serious about trimming the fat, but actually getting returns from noncore businesses. Heymann continues on about GE Commercial Aviation Service (GECAS), where he sees rising chances to “be sold at or above book value”
Heymann believes that the monetization potential of GECAS and Healthcare (as well as “non-core GE Digital”) could increase “GE’s liquidity by as much as about $50 billion-$55 billion (including about $32 billion of incremental debt reduction and about $18 billion-$25 billion of incremental cash generation) beyond the company’s previously disclosed June 2018 corporate transformation plan.”
Should this go through as planned, the analysts added liquidity “could provide adequate cash resources to fund the estimated roughly $10 billion of remaining underfunded loss reserves at GE Capital’s long-term healthcare reinsurance and pay for an accelerated right-sizing for GE Power’s global large steam and gas turbine production capacity.” Put simply, the faster and larger GE IPOs or sells noncore assets, the better the company will look for investors.
Overall, GE has 9 bullish analysts in its corner over the last three months, 9 analysts playing it safe on the sidelines , and 1 bear who sees the stock a Sell. The 12-month average price target (from a pool of Street-wide expectations) showcase 20.45% in upside potential for the ‘Moderate Buy’ rated stock. (See GE’s price targets and analyst ratings on TipRanks).