Not every call on Wall Street can strongly bullish—or bearish. Sometimes analysts don’t see big gains—or big problems. But a lack of drama can be a good thing in certain situations.
Wells Fargo launched coverage of General Electric (ticker: GE) Thursday evening. Analyst Joseph O’Dea sees some positives at GE, but still rates shares at Hold. His price target of the stock is $107, close to recent levels around $105.
The Hold isn’t all bad news. O’Dea believes GE’s goals are achievable and expects the company to produce “high single digit” percentage point free-cash-flow margins in 2023. That translates into about $7 billion in annual free cash flow that year, up from cash burn of about $1.2 billion in 2020 and positive cash flow of about $4.6 billion in prepandemic 2019.
Things are getting better at GE, but O’Dea believes the stock is fairly valued and trading in line with industrial peers he covers.
“Achievable” goals and “trades in line” with peers aren’t all that bad for GE considering what GE investors have been through. Shares have fallen about 50%, in total, over the past five years as industrial stocks in the S&P 500 have risen about 70% on average over the same span. That performance is a reason why a new CEO, Larry Culp, the first in GE’s history from outside the organization, was brought in to turn things around in late 2018.
For O’Dea, getting margins, the valuation multiple and the stock price higher will require a recovery in commercial aerospace. Air travel has been decimated by Covid-19 and domestic air travel remains roughly 25% below 2019 levels. He projects aviation sales to total roughly $30.6 billion in 2023, down about 7% compared with $32.8 billion generated in prepandemic 2019.
He projects 2021 GE aviation sales of about $21.6 billion, down about 34% compared with 2019.
If commercial aerospace can recover faster than O’Dea expects, he might change his mind.
O’Dea is a little more bearish than the average analyst. Overall, 65% of analysts covering GE stock rate shares at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $119 a share, up about 13% from recent levels.
GE stock is up about 22% year to date, a little better than the comparable 17% rise in the S&P 500.
Next up for GE investors will be earnings, due later in October. Investors and analysts will be paying close attention to free-cash-flow guidance. GE’s current 2021 free-cash-flow guidance for its industrial operations is a midpoint of $4.3 billion. Management raised guidance in July from prior guidance of about $3.5 billion.
Write to Al Root at email@example.com