Oppenheimer Upgrades General Electric (GE) to Outperform amid Positive Direction
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(Updated - November 24, 2020 9:02 AM EST)
General Electric (NYSE: GE) management has set a positive direction with broadening momentum which should ultimately drive the stock higher, writes Oppenheimer analyst Christopher Glynn in today’s note to clients where he upgraded the stock from "Sector Perform" to "Outperform."
Following a sale of BioPharma to Danaher to approximately $20 billion in net cash proceeds, the company’s financial situation has improved immensely.
“Post BioPharma sale, net debt of $34.6B (including $21.9B pension deficit) is down $13.3M ytd; core borrowings down $8.1B to $24.9B; cash balance up $6.7B to $24.3B. Near-term liquidity draws are minimal, with flexibility to fund pension or retire preferred stock during 2021, but unconstrained by urgency, as GE balances credit rating considerations during Aviation downturn and as GEC rebuilds operating track record,” Glynn wrote.
“Cash restructuring was $4.2B 2017-19; 2020-21 expected above 2019's $1.2B. Healthcare delivered 41% 3Q organic incremental margins (600 headcount reduction just in 3Q); Renewables headcount was (900) in 3Q, and Aviation is enacting 25% census reduction (targeting return to ~20% Aviation OM well ahead of full recovery). Gas Power fixed-cost reduction remains on track, and we see near-term seasonal 4Q upside operating leverage potential.”
The management team has presented a positive direction, centered around more diligent and better-focused restructuring and higher focus on cultural decentralization and accountability, adds Glynn.
“GE continues to emphasize a long game of inches, but we also believe the pace of manifest improvements picking up, as lean becomes culturally reinforcing and Culp's turnaround gaining traction.”
Overall, a working capital performance could yield a positive surprise next year. Once coupled with strong liquidity and positive debt structure, the stock seems well-positioned to gain next year. Glynn set a $12.00 per share price target on GE.
Shares of General Electric closed at $10.33 yesterday.
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