“Previously, we thought GE’s long-term earning power would increase with deleveraging, but we now see significant risk that Biopharma sale proceeds earmarked for debt reduction will be diverted to backstop large operating losses in Aviation, Power, and Renewable instead,” Scarola told investors.
“Despite the cash burn we expect in 2020, our lower rating is ultimately due to a highly uncertain outlook for GE’s balance sheet and earning power in 2021 and beyond” he explained.
On Wednesday the stock gained 3.8% after GE released its financial guidance and first-quarter performance update.
GE revealed that it preliminarily expects adjusted 1Q EPS to be “materially below” its prior guidance on March 4, 2020 of about $0.10, and withdrew financial guidance for 2020.
However, investors were encouraged by the fact that GE preliminarily expects industrial free cash flow to be near the prior guidance of about negative $2 billion.
GE CEO H. Lawrence Culp said, “We are taking swift actions across the company to position GE to come out stronger on the other side of the COVID-19 crisis. With net proceeds of about $20 billion from the BioPharma transaction now in hand, we have more flexibility to de-risk and further strengthen our balance sheet. We are committed to bringing down our leverage over time as we navigate this period of uncertainty.”
TipRanks shows that analysts have a Moderate Buy consensus on GE, with 8 recent buy ratings vs 7 hold ratings. Meanwhile the average analyst price target of $11 indicates upside potential of almost 60%. (See GE’s stock analysis on TipRanks)
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