Citi Reinstates General Electric (GE) Coverage with 'Buy' and a 'Street-High' Price Target Amid Improving Execution

May 14, 2021 11:04 AM EDT
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Citi analyst Andrew Kaplowitz resumed research coverage of General Electric (NYSE: GE) with a “Buy” rating and a Street-high $17.00 per share price target based on the sum of the parts valuation.

“With evidence of improving execution across much of GE’s portfolio and given our expectation of gradual but likely accelerating recovery in GE’s Aviation business particularly in 2H21 and beyond, we see material upside in GE’s shares as demand recovery and operational improvements support growing and more consistent/sustainable cash flow generation in ’21 and beyond,” the analyst wrote in a note to clients Friday.

He believes the company’s multi-year turnaround remains “largely on-track” as more and more signs point towards good traction and longer-term success.

“While overall N-T profitability remains muted, we are encouraged for instance by recent results such as GE’s solid 1Q operational performance in Aviation, where despite a nearly ~30% y/y revenue decline, y/y segment op margin decline was limited to <200bps (and increased q/q on lower revenue), which we think is indicative of good traction with GE’s cost out efforts in the business that should support strong profitability as demand recovers over time. More broadly, our sense is that GE’s overall focus on simplification of its portfolio and operations continues to gain traction throughout the company.”

Kaplowitz notes that the pending sale of the company’s aircraft leasing business will be a “notable step” in the streamlining of the company’s business model and further de-risking.

As such, and given our expectation for continued improvement in overall profitability and cash generation over the next several years as legacy headwinds wane and longer-term improvements in segments such as Power and Renewables take hold, we view GE’s self-help runway coupled with a recovering macro-environment supporting incremental share price appreciation. Finally, we note that GE could, over time, be a key beneficiary of a growing focus on energy transition/clean energy, which we think is not a material driver of the stock today but could be a source of significant upside if GE is to successfully improve its profit/cash profile in potentially significantly growing markets such as wind turbines,” the analyst added.

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