https://www.barrons.com/articles/ge-stock-free-cash-flow-earnings-sentiment-51572887401
GE Stock Is Up Because the Tide Is Turning
Nov. 4, 2019 12:11 pm ET
Photograph by Patrick Hertzog/AFP via Getty Images
The further General Electric moves away from its historical write-downs and bad acquisitions, the more willing new long-term investors are to take a fresh look at the stock.
Shares of the conglomerate were up more than 4.6% on Monday morning, rising to $10.84, after gaining more than 15% last week in response to GE's third-quarter earnings report.
Wall Street analysts continue to weigh in on the company.
"So far 2019 has been somewhat typical—in GE terms—of what one would expect to see from the first year of a new external CEO at a troubled conglomerate," wrote Barclays analyst Julian Mitchell in a Sunday research report, referring to the stock volatility, asset sales, special accounting charges, and business shifts that can accompany big changes in the C-suite.
"However, there are also some clear signs of progress amidst the housecleaning, which will likely cause more long-term investors to start to take a closer look at GE."
Mitchell says the path to higher free cash flow—a focus of attention among investors, given that the conglomerate has been spending more than it generates—is a little clearer. "Free cash flow will be down will be down considerably in 2019 year over year, but slightly less bad than was feared 6 to 9 months ago."
Wall Street is always looking for "less bad," trying to identify the points when business conditions or stock-market sentiment begin to shift.
General Electric (ticker: GE) reported more free cash flow than expected last quarter and raised its full-year forecast. The conglomerate now says free cash flow will be in a range with a midpoint of $1 billion, rather than one with a midpoint of zero. The increase was likely the biggest factor pushing the stock up more than 11% on Oct. 30.
Not all Wall Street analyst agree that the increase was meaningful. Several pointed out the free-cash-flow changes were driven by one-time items, arguing that GE isn't out of the woods yet.
J.P. Morgan analyst Stephen Tusa, who is bearish on the stock, attributed the improved cash-flow performance to timing issues. "There is a lot of noise in the numbers," he said.
Tusa rates GE shares the equivalent of Sell and has a $5 price target for the stock. Mitchell rates shares the equivalent of Buy and says they could rise to $12.
New CEO Larry Culp might agree—to some extent—with the more subdued assessment. He is careful to point out that the turnaround process under way at GE is a multiyear undertaking, although he feels good about the progress the company has made at reducing debt and cutting costs.
Given that the stock is down substantially from its all-time high, the share price already reflects a lot of concern among investors. Consider that when Culp took over in October 2018, GE stock was trading at $10.85. After all the actions he has taken—including cutting or shifting 7,000 jobs and engineering tens of billions in asset sales—GE stock is at about $10.84, just a penny lower.
GE shares are up about 20% over the past year, better than the 11% comparable gain of the Dow Jones Industrial Average over the same span.