How GE Power Will Drive General Electric Higher
After a weak fourth quarter, the GE Power business is poised for a recovery, despite the weak heavy duty gas turbine environment, as GE is taking advantage of its broader suite of products post-Alstom.
[cnxvideo id=”655416″ placement=”ros”]General Electric Co. (NYSE: GE) shares have fallen off a little in 2017, but this could be changing in the near future. Although the stock has only dropped just under 6% in this time, one key analyst sees significant upside in this iconic industrial driven by its Power segment.
Credit Suisse reiterated an Outperform rating with a $34 price target, implying an upside of 14% from Wednesday’s closing price of $29.80.
After a weak fourth quarter, the Power business is poised for a recovery, despite the weak heavy duty gas turbine environment, as GE is taking advantage of its broader suite of products post-Alstom. The company is now selling more Power Island systems, rather than gas turbines on their own, in addition to the Services business, which continues to grow in the mid-single digits (Alstom increased the installed base by roughly 50%).
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The brokerage firm commented in its report:
The Power segment continues to be the main driver behind GE’s cash conversion improvement, and Mr. Steve Bolze laid out a plan to improve his segment’s conversion by 15% this year. Renewables continues to grow healthily, with double digit organic revenue and operating profit growth (as a reminder, Power & Renewables comprise 32% / 31% of Industrial Revenues / EBIT). The company also announced the sale of its Water & Process Tech business to Suez for a higher multiple / price than our initial expectations. The stock has been very weak for the last 12 months, but we think the pro-cyclical cross-sector rotation has largely run its course, and GE is running out of shoes to drop.
The company also gave a quick update to its Baker Hughes Inc. (NYSE: BHI) merger. GE Chief Financial Officer Jeff Bornstein presented an update to Baker Hughes, maintaining the 2017 guidance as reported at the December Analyst Day and the fourth-quarter earnings, including commentary that the additional $1 billion of cost-out is seeing very rapid progress. As regards the Baker Hughes merger, GE continues to expect the deal to close by midyear.
Shares of GE were last seen at $29.80 on Thursday, with a consensus analyst price target of $33.73 and a 52-week trading range of $28.19 to $33.00.
Baker Hughes traded down 1.3% to $56.95, with a consensus price target of $69.88 and a 52-week range of $38.16 to $68.59.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
