About three weeks ago, we got a look at General Electric (NYSE:GE), and found the company was making some new gains that should have caught investors' attention. Those gains proved not to be a temporary phenomenon, as even Goldman Sachs is seen getting behind the company as it pushes to recover its former prominence.
Goldman Sachs Returns to the Fold
The biggest move in recent days for GE was the return of Goldman Sachs to GE coverage. It returned in a big way, too, not only offering up a basic recommendation of “buy” for the stock, but also noting that there's as much as a 50% upside to GE's current share price.
Essentially, as described by Joe Ritchie, analyst with Goldman Sachs, GE has fought hard to become a “leaner, structurally more productive company with better capital discipline.” A good summary of such a note might be “it's making more and spending less.” The efforts made under new CEO Larry Culp appear to be bearing fruit, and Ritchie looks for further gains in cash flow to show up next year. Ritchie expects many of GE's higher-margin operations will likely recover as the pandemic starts to pull back, a point we're already starting to see on some fronts.
If such improvement does take place, free cash flows will pick up, and the company can start looking at making expansion efforts again. That should be particularly valuable with the company's greater focus on fiscal discipline, a point which should help it make targeted, considered expansion that puts the focus on the company's bottom line. Third-quarter earnings reports set to come out at the end of this month should help give further impetus to investors to get back in the GE fold.
Goldman Sachs Just Part of the Buy Chorus
If it were just Goldman Sachs suggesting a buy, that would be one thing. The consensus, however, has been weighted behind “buy”, and for the last six months. The current consensus, based on our latest research, currently has seven “hold” ratings on GE, and nine “buy”. That's up one “buy” from 30 days ago, which featured the same mix as 90 days ago. Going clear back to the 180 day figures, meanwhile, showed us just six “hold” and seven “buy” ratings. Not only is GE buying more interest in buying, but also drawing more interest from analysts in general.
Price targets also vary wildly; while the consensus right now represents a fairly substantial upside, even after recent gains, there's a pretty broad range setting that consensus up. The stock closed yesterday at $6.64, and as of this writing is trading at $6.75, down somewhat from its pre-market highs, which were over $7 at one point. The consensus price target, meanwhile, is $9.20 per share, with Deutsche Bank putting up the lowest target at $6.25 per share, and the current high so far coming from Bank of America at $11.
A Fighting Chance at Recovery
You've got to hand it to GE; even back during the second quarter, it was demonstrating its comeback potential. The second quarter of 2020 was a clear disaster for everybody, but for GE, it still managed to beat analysts' forecasts on revenue by about $700 million. It even managed to post better free cash flow, a point which can be a challenge in good times, let alone an economic catastrophe.
GE still has a long way to go before it gets back to truly positive territory. It's made great strides so far, and if it can keep that up, it's got every possibility of coming out ahead. When a company expects to be “free-cash flow positive” by 2021, that's a good sign of limited scope.
GE will have quite a few problems going forward. For instance, one of its biggest operating sectors is aviation, and while it's started production of a whole new class of engine known as the Passport, the aviation sector in general is badly depressed right now, to the point that airlines are pleading for a second round of stimulus while plotting massive numbers of furloughs and layoffs. Some potential trouble ahead with the Securities and Exchange Commission following the receipt of a “Wells Notice” around its insurance operations doesn't help matters either.
However, given the current price of GE's shares, the rapid move toward recovery, and the fact that at least some of its businesses stand a good chance of gaining ground in the next few months, the end result should, ultimately, be positive for both GE and its investors.
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