General Electric Company (GE): Questions Still Circle FCF Levels, Says Oppenheimer

Oppenheimer's Christopher Glynn says while some GE questions have been met with answers, FCF questions hover around valuation.


General Electric Company (NYSE:GE) shares have shed a steep 41% in value over the past year. To say 2017 was not the American car maker’s best would be quite an understatement. On Monday, GE investors had to have winced after the company lost a bull in Bank of America. The firm cut its rating on GE stock from Buy to Neutral, anticipating 2018 expectations will be chopped before the opening bell tomorrow.

This all follows suit the ghost of a gaping $6.2 billion after-tax charge, a daunting $9.5 billion pretax. It seems that an insurance portfolio GE divested in over a decade ago now haunts overcast above these struggling shares.

Oppenheimer analyst Christopher Glynn comments on “headline risk past,” from an “adverse result of insurance review” to “tax rate up to low/ mid-20%s from low/mid-teens” and yet, “some questions have been answered.”

“Turning to valuation, questions remain around growing FCF levels from 2018E presumed level ($6-7B guidance),” writes the analyst, working out the numbers: “With variability around level of BHGE cash distributions to GE FCF and prospective BHGE share buyback proceeds (assume 62.5% proceeds collectible by GE), we favor view of calculating ’18E FCF yield as $6B ($6.5B midpoint less placeholder of $0.5B BHGE anticipated distribution) against $115B adjusted market cap (GE’s, less value of BHGE stake). This 5.2% yield compares evenly with mean/median for our coverage, though lending to less discretion in usage in GE’s case.”

Glynn contends, “Assuming a net neutral balance sheet picture (by refraining from accruing reallocation of non-operating cash sources, other than to neutralize liabilities), we believe a tri-part sum-of-parts (BHGE, Aviation/Healthcare, Power Renewables) could unlock value, and will remain attentive to that prospect.”

Though the analyst recognizes potential for “optimism” down the line, for now, Glynn reiterates an Underperform rating on GE stock without listing a price target. (To watch Glynn’s track record, click here)

TipRanks analytics suggests a cautious analyst consensus assessing General Electric stock. Out of 13 analysts polled in the last 3 months, 1 is bullish on General Electric stock, 9 are remain sidelined, while 3 are bearish on the stock. With a return potential of 6%, the stock’s consensus target price stands at $17.89.

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