General Electric Co.’s shares fell again on Thursday, putting them on track to suffer the biggest drop in more than 11 months, with analysts doing a mixed analysis of the industrial conglomerate’s Analyst Day and GECAS business.
The GE stock,
fell 8.8% in afternoon trading, which would be the biggest of a day since it fell 11.3% on April 1, after falling 5.4% on Wednesday following the announcement of the deal and analyst event .
Since the stock closed at a nearly three-year high of $ 13.60 on March 8, it has now fallen 14.6% amid a three-day losing streak.
The extended sale of the shares comes after GE announced a $ 30 billion deal to combine its aircraft leasing business (GECAS) with AerCap Holdings NV AER,
and surprisingly it proposed a reverse split from 1 to 8. The company also said that what remained of its GE Capital business, after the GECAS business, would be incorporated into GE Industrial and provided updated financial guidance at its Analyst Day event. Read more about the GE’s changes on Wednesday.
Deutsche Bank analyst Nicole DeBlase raised her stock price target from $ 13 from $ 13 to $ 14, amid an improved free cash flow (FCF) outlook in 2022 and 2023 to coincide with management guidance. It reiterated the retention rating it has had on the shares for at least two years, citing the lack of appreciation of its target price.
Although DeBlase “did not find many surprises” in GE’s outlook for this year, she believes that “positioning / expectations were an important component” of the stock’s subsequent commercial action.
“GE has been a consensus among hedge funds for several months and remains the favorite way to gain exposure to the ‘reopen’ trade, given the importance of the aviation business for both [earnings per share] and FCF, ”DeBlase wrote in a note to customers.
After a record 73.4% quarterly increase in the fourth quarter, DeBlase said the stock performed best among his peer group this year, “so we don’t believe expectations can be described as low at the start of the event.”
In addition to the assessment, she said she heard some other “not so positive” feedback, including questions about the timing of GECAS trading, as it occurred during the bearish cycle, and that trading was a “sneak” way of amortizing GECAS assets.
FactSet, MarketWatch
Oppenheimer analyst Christopher Glynn said the deal and guidelines put GE on a “solid” basis as it improves capital efficiency and comes amid expectations that a “solid recovery” is underway in aviation.
But Glynn also expressed concern about the valuation, while cutting GE’s rating for performance, after having been outperforming since November, while removing its target price. He said his downgrade was based on the valuation, as the stock had exceeded its previous target price of $ 13.
Glynn wrote that “some substantial turnaround and cyclical recovery execution” is already “priced at current levels”, but said that the extended duration of the debt structure and strong liquidity now provide GE “a scenario to emerge from the aviation slowdown in a position of resilience. ”
Meanwhile, longtime bassist / skeptic Stephen Tusa of JP Morgan reiterated GE’s neutral rating last year, but said he still sees a “downside” to the stocks, according to his $ 5 price target. 5, which is 59% below the current levels.
Tusa said that although he agrees that a simplified GE after the GECAS business is a positive, he said the business and financial outlook just “crystallized” for him the “real bear case” for stocks.
With GECAS no longer on the scene, Tusa said there are no more GE Capital assets for Wall Street bulls to argue that there is enough value / equity to support the related debt.
“Final result, with free money from [COVID-19] registered vaccine trade, GE’s narrative as a turnaround gaining momentum with a cash and earnings V-shape is reaching numbers that show sustained high leverage, well above the targets, despite [more than] US $ 70 billion in shares in addition to fundamentals that we would characterize as mixed with expectations of future earnings that remain very high ”, wrote Tusa.
Markus Mittermaier, from UBS, was a little more tolerant, however, in reiterating the purchase rating he has had at GE since December 2019 and his goal of $ 15 for the stock price, which implies a 24% gain in current levels.
He said that, despite the short-term “hits” for the FCF, simplification after the GECAS business is “a clear positive strategically”. He said that for the very short term, he understands the “negative interpretation” of some of the business elements and perspectives, such as the 2021 FCF adjustment to further reduce the factoring balance, as well as the increase in net debt for incorporating GE Capital on GE’s balance sheet.
“That said, this has not lessened the excess of future factoring twists and has further reduced the risk of the aggregate debt image, which we believe will make investors more and more willing to ‘subscribe’ to the new GE that is emerging, which should help multiples, ”Mittermaier wrote. “On the balance sheet, we think [Wednesday] it was an important step towards creating a simpler GE with significantly less ‘legacy projections’ and improved medium and long-term strategic options. “
GE shares rose 47.3% in the last 12 months, while the SPDR Industrial Select Sector XLI exchange-traded fund,
advanced 46.7% and the S&P 500 SPX index,
rose 44.0%.