General Electric's (GE) Outlook Call Highlights Financial Improvements But Cowen Sees the Stock as Fully Valued
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Cowen analyst Gautam Khanna reiterated a Market Perform rating on General Electric (NYSE: GE) after the company hosted its outlook call that provided granularity on segment prospects, affirmed deleveraging plans, and made clear that segment leaders "buy-in" to the financial targets.
However, the analyst's valuation framework reveals limited upside despite the improvement in financial statements, leaving the analyst to state "we prefer a no-clutter valuation framework
that anchors to CEO Culp's aspirational (i.e. after C22) Industrial FCF/sales target of a high
single digit %. For context, C20 Industrial sales are guided to be near $85B, with $2-4B of
Industrial FCF ex pension & the subsidy for GE Capital. If sales compound at a 3-4% CAGR
through C23 (a bull case), a 9% ("HSD %") FCF/Industrial sales level would imply approx.
$8.5B of Industrial FCF before $1.5-3B needed for pension & Capital support. At 18-20x the
$5.5-7B of hypothetical C23 Industrial FCF, the implied equity value of the stock (assume
~$9B of net debt, 8.7B shares, & Capital = $0) is in a range of $11-13, in two years".
Shares of General Electric closed at $10.64 yesterday.
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