With the 737 Max Due Back Soon, Will General Electric (GE) Stock Move Higher?

For the first time in a long time, General Electric (GE) news isn’t about its restructuring process.

The company on Tuesday made headlines from the Paris Air Show, as many in the aircraft industry are saying Boeing’s 737 Max will be ready to fly soon. The Max was grounded earlier in 2019 after two fatal crashes came within six months of each other, with blame pointed to the MCAS safety system. With the grounding, Boeing announced it would seriously cut production of the Max aircraft, which had a ripple effect down the supply chain, including with GE who manufactures its LEAP engine. But with the Max expected back in the air soon, production — and sourcing from GE — should ramp up.

Analyst Andrew Obin of Merrill Lynch isn’t changing his tune, though, as he keeps his Neutral rating on General Electric stock, with $12 price target. (To watch Obin’s track record, click here)

GE saw good news in the form of increased orders of its LEAP engine, manufactured by the company through a joint venture with Safran. Indian carrier IndiGo ordered $20 billion of the LEAP engines to be used on its Airbus A320 and A321 aircraft. GE also picked picked up a victory with IAG placing 200 orders for the Boeing 737, which uses the CFM56 engine, also manufactured by GE through its joint venture.

On the Max, Obin says GE management was “more optimistic than other suppliers…at the show about 737 MAX re-certification ‘sooner rather than later.’” But while optimistic, the analyst says GE “expects about $300 million of working capital outflow in 2Q due to the grounding.” As cash flow is a major challenge for GE and focus for investors, many will keep an eye on this moving forward.

Overall, the 737 Max is providing GE with an external challenge, one that isn’t too common for the company right now. The main focus for GE is restructuring. CEO Larry Culp is being praised for his efforts to this point, as the company has rebounded from a terrible 2018 and is showing promise that it is returning to a stable stock. The Boeing challenge is expected to be short-term, as many on Wall Street continue to focus on the bigger picture of restructuring.

All in all, with the Max airplane expected to return to service soon and restructuring moving well, analysts are becoming more confident with GE stock. TipRanks analysis of 10 analyst ratings shows a consensus Moderate Buy rating, with four analysts rating Buy, four rating Hold and two suggesting Sell. However, the average price target of $10.86 suggests a slight upside from current levels. (See GE’s price targets and analyst ratings on TipRanks)

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