General Electric stock popped about 10% higher on Wednesday, after the maker of giant industrial equipment reportedbetter-than-expected free cash flow.
Full-year 2019 industrial free cash flow came in at $2.3 billion, above the upper end of management guidance given in October.
It was a strong result. Now Wall Street analysts are weighing in. And, as is often the case with General Electric (ticker: GE), there is a range of opinions.
Barclay’s analyst Julian Mitchell called it a “clean quarter” with balance sheet—which means debt—metrics improving. Coming out of the quarter, “long-term investors may deem it worthwhile to do work on GE,” the analyst wrote in a Wednesday research report. “We think the results and solid outlook are sufficient to support the stock, despite fairly high short-term investment community expectations going into the print.” In other words, the numbers, for Mitchell, were good enough.
He rates shares the equivalent of Buy and has a $14 price target.
The stock is up more than 30% over the past three months, far better than comparable gains of the S&P 500 over the same span. That’s why Mitchell believed expectations were elevated.
RBC analyst Deane Dray appears to agree with Mitchell, noting that investors will likely be pleased with cash flow upside. The company’s 2020 industrial free cash flow guidance of about $3 billion is better than consensus estimates of $2.2 billion. Cash flow has been the focus for investors since CEO Larry Culp took over in late 2018.
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“We are mindful that GE boosted its full-year FCF guidance twice in 2019, suggesting that there may be room for upside to this initial 2020 forecast as well,” added Dray. GE’s earnings guidance for 2020 was about 55 cents a share, below the 67 cents analysts modeled.
Dray rates shares the equivalent of Buy and has a $13 price target.
Credit Suisse analyst John Walsh pointed out in a Wednesday research report that divisional profits and margins beat his expectations. GE Power’s profit margin, for instance, increased by more than 20% because certain financial charges didn’t repeat. GE Power is in the midst of a multiyear turnaround. The unit is dealing with declining orders for turbines that turn coal-generated steam into electricity as the world moves away from fossil-fuel-based power generation. Aviation, on the other hand, was strong, with sales up 7% year over year in the fourth quarter.
Walsh rates GE stock the equivalent of Hold and has an $11 price target.
Gordon Haskett analyst John Inch believed investors expected an earnings “beat” in the quarter just reported, and they got what they wanted. “Bulls are likely to point to their perspective of a conservative guide while bears are likely to note that GE remains a beat-and-raise momentum story,” wrote Inch.
GE’s earnings guidance appears to exclude about 10 cents of per-share earnings from GE Healthcare’s biopharma division, which is being sold to Danaher (DHR). That’s another factor for investors to consider when evaluating earnings guidance.
Inch rates shares the equivalent of Sell and has a $7 price target.
Overall, analyst price targets range from $5 to $18 a share. The $13 spread is more than 100% of the current stock price, far wider than the average bull-bear spread for stocks in the Dow Jones Industrial Average.
That means not everyone is convinced the turnaround being led by Culp will last. Bullish investors, however, are in control of the narrative lately.
Write to Al Root at allen.root@dowjones.com
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January 29, 2020 at 11:22PM
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GE Stock Is Soaring After Earnings. Here’s What Wall Street Is Saying. - Barron's
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