A rating upgrade from Market Perform to Outperform lifted shares of General Electric Co. (NYSE: GE) by more than 7% Tuesday morning. Analyst Christopher Glynn at Oppenheimer boosted GE’s price target to $12 (a current high), implying a potential gain of about 10% to Tuesday’s trading price. Based on Monday’s closing price of $10.07, the implied gain to Glynn’s price target is closer to 20%.
Last week, the CEO of GE’s aviation segment, John Slattery, announced that the group’s staffing level would be further reduced following layoffs earlier this year that eliminated about a quarter of the segment’s 52,000 employees. Calling the new round of job cuts more targeted, Slattery said that revenue and profit projections for the next two years were lower than the company’s earlier projections.
Then last week, the U.S. Federal Aviation Administration (FAA) lifted its grounding order on the Boeing Co. (NYSE: BA) 737 commercial jet. GE, along with Safran, its French partner in a 50-50 joint venture, makes the Leap 1-B engine used to power the 737 Max.
Last February, GE reached a deal with Boeing under which the aircraft maker would pay in full for all engines delivered to Boeing in 2020. Boeing also agreed to pay in full for the engines it received in 2019 but couldn’t deliver to customers due to the FAA grounding order. Typically, engine suppliers are paid when airplanes are delivered to airline customers.
That agreement helped turn GE’s free cash flow numbers around. When GE reported third-quarter results in late October, CEO Larry Culp said the company expected Industrial free cash flow to reach $2.5 billion in the fourth quarter, up from $514 million in the third quarter after dropping to a negative $4.3 billion in the first half of the year. Culp also expects positive free cash flow for the 2021 fiscal year.
In his report, Oppenheimer’s Glynn said that GE is moving in the right direction driven by “diligent and better-focused restructuring” and a growing culture of operating as a lean company.
Glynn also highlighted the improvement in Industrial free cash flow along with the stronger balance sheet GE is putting together as a result of its sale to Danaher of the BioPharma division for $13.3 billion. GE reduced its debt in the third quarter by roughly the same amount and ended the quarter with $34.6 billion in net debt.
At last look, GE traded up about 6.2%, at $10.70 in a 52-week range of $5.48 to $13.26. The consensus price target on the stock is $8.89, and GE’s annual dividend of $0.04 yields 0.41% at the current share price.