Industrials

Why GE's View on Cash Flow and Stabilization of Markets Matter

General Electric Company (NYSE: GE) has faced a disastrous time in 2020. Despite posting an impressive recovery at the start of 2020, GE shares fell off a cliff into the recession and its prized aviation business came under deep pressure. Even after almost 6 months since the v-bottom of the stock market, GE’s stock has remained at more or less the same levels.

That may be changing at least a tad after Larry Culp made a presentation on Wednesday.

A virtual Morgan Stanley investor conference featured Chairman and CEO Larry Culp on September 16, and Culp has now predicted that GE will have positive cash flow in the second half of 2020.

GE withdrew its prior financial forecasts back in the dog days of April, but the earnings report at the start of August came with some severe concerns about GE’s cash flow for the second half of 2020. It was easy to see why GE could be facing multi-year concerns.

The Morgan Stanley investor conference included Larry Culp further tweaking what had previously been “sequential improvement from the $4.3 billion in negative cash flow” in the first half of 2020.

Another boost is that Larry Culp also noted that GE will be cash flow positive in 2021. While Culp did not go into details and did not speak of any major recovery for the company, his view as of now is that GE’s markets have been by and large stabilizing.

GE was touted as being nearly worthless in a JPMorgan report at the end of August, and the Neutral rating came without a formal price target other than “less than $5 per share” as a fair value. New information from GE may change that view.

Investor conferences often get overlooked, and sometimes they have nothing more than benign commentary. This outlook of stabilization and positive cash flow was good enough for nearly a 9% move up in GE shares. At $6.65 in mid-afternoon trading on Wednesday, GE’s 52-week trading range is $5.48 to $13.26. The Refinitiv consensus analyst target price is still up at $7.75.

While positive cash flow is a help, it may not translate to strong earnings. Refinitiv’s consensus estimates are calling for a loss of 4-cents per share in GE’s third quarter and a loss of 4-cents per share in full 2020 earnings. That consensus estimate is currently just $0.35 in earnings per share in 2021, barely half of what it made in 2019.

One other analyst report from BofA Securities had a $11 price target on General Electric’s stock ahead. That report is much more aggressive than the pack, but the firm views GE as a turnaround candidate for 2021 and beyond.