General Electric (GE) Bear Case Does Not End In A Liquidity Crisis - Deutsche Bank
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Deutsche Bank analyst, Nicole DeBlase, reiterated her Hold rating on shares of General Electric (NYSE: GE) and cut her PT to $7 from $11 and laid out what she considers to be a realistic bear case for the company. In short, she believes investors are concerned about the trajectory of GE Industrial FCF and whether the company is headed for a liquidity crisis but that in a worst case scenario, there will not be that crisis.
The analyst stated "We have built up a detailed segment-by-segment bear case earnings model, which assumes continued declines at Power and modest downturns in Renewables, Aviation and O&G. We also assume a maximum cash outflow from contract assets and progress payments of $3bn and $2bn p.a., respectively, and that accounts receivable continue to increase as GE Capital is unwound and the Healthcare spin is consummated. These assumptions get us to $0.21/share cash burn in 2019e, $0.58/share in 2020e and $0.14 in 2021e, after accounting for lost cash flow of expected asset disposals. The good news is that even in this drastic scenario,
we do not foresee a liquidity crisis; the GE Industrial cash balance (ex-overseas cash) would end 2021e at $5bn, in line with 3Q18 levels".
Shares of General Electric closed at $7.65 yesterday.
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