If you asked a random stranger what General Electric (GE) does, they’d look at you like it’s a trick question. And they’d be right. Most people know GE as the giant manufacturer that makes everything from dishwashers and microwaves to jet engines and wind turbines, but many investors view GE as a bank – a very large bank. And the company’s stock has plummeted 60% this year because its Capital unit (i.e. its “bank” unit), has turned into a complete disaster.
Be that as it may, UBS analyst Steven Winoker sees a way for the company to get through this, and has reiterated his Buy rating on GE stock with a price target of $13.00. (To watch Winoker’s track record, click here)
Based on conversations with investors, Winoker says, it is clear “investors consider leverage to be far and away the most pressing issue concerning GE today.” Yet he sees the possibility of the company “(reaching) ~3x net debt / EBITDA by the end of 2020E, and ~2x by 2022E” by undergoing significant divestitures in order to trim debt.
The analyst says that GE could look into selling its aviation leasing arm (GECAS) or its Life Science division, or “(launch) a debt tender offer to retire outstanding bonds at attractive prices.” The analyst says, “From our interactions with management, it’s clear that they are evaluating all scenarios, and the top priorities are mitigating risk in GE Capital, reducing overall leverage, and improving operational performance.”
Moving forward, if GE can right the ship, it may able to reap the rewards by focusing on its renewable energy business. In Q3FY18, the company reported segment revenue at $2.9 billion, which, when converted to an annual $11.6 billion, makes GE’s business larger than that of many competitors in the renewable industry, including First Solar and SunPower. As this industry is fast-growing compared to other areas in energy, GE may see fit to invest and focus on this side of the business.
Even amid the disaster that is GE’s stock, analysts are actually cautiously optimistic. TipRanks analysis of 17 analyst ratings on the stock shows a Moderate Buy consensus, breaking down into 7 Buy, 9 Hold and 1 Sell ratings in the last three months. TipRanks shows that the average analyst price target is $11.57, which represents about 63% upside from current levels. (See GE’s price targets and analyst ratings on TipRanks)