Shares of General Electric Co. took another dive on Thursday, putting it on track to suffer the biggest drop in more than 11 months, as analysts gave a mixed review of the Industrial Conglomerate’s Analyst Day and GECAS agreement.
The stock GE,
fell 8.8% in the afternoon trade, which would be the biggest one-day since falling 11.3% on April 1, after falling 5.4% on Wednesday following the deal announcement and analysis event.
Since the stock closed at $ 13.60 on March 8 for almost three years, it has now tumbled 14.6% amid a three-day loss.
The share expansion comes after GE announced a $ 30 billion deal to merge its aircraft leasing business (GECAS) with AerCap Holdings NV AER,
and surprisingly suggested that a 1-for-8 reverse stock be split. The company also said what was left of its GE Capital business, following the GECAS agreement, would be incorporated into GE Industrial, and provided updated financial guidance during the Analyst Day event. Read more about GE’s moves on Wednesday.
Deutsche Bank analyst Nicole DeBlase has raised her share price target from $ 13 to $ 14 amid an improved outlook for free cash flow (FCF) in 2022 and 2023 to align with management’s leadership. She reiterates the rating she has had on the stock for at least the past two years, citing the lack of sideways price target.
Although DeBlase “did not find many surprises” in GE’s prospects for this year, it believes its ‘positioning / expectations were an important component’ of the stock’s subsequent trading action.
“GE has been a consensus among hedge funds for several months now and is still a favorite way to gain exposure to the ‘reopening’ trade, given the importance of the aviation industry for both [earnings per share] and FCF, ”DeBlase wrote in a note to customers.
After a quarterly surge of 73.4% in the fourth quarter, DeBlase said the share was the top performer in its peer group this year, ‘so we do not think expectations can be described as a low definition.’
Apart from the valuation, she said that some other “not-so-positive” feedback was heard, including questions about the timing of the GECAS transaction, as it took place during the cycle strip, and that the transaction was a “. sneaky “way was to write down GECAS assets. .
FactSet, MarketWatch
Christopher Glynn, an analyst at Oppenheimer, said the agreement and guidance put GE on a ‘solid’ footing as it improves capital efficiency and comes amid expectations that a ‘solid recovery’ in aviation is underway.
But Glynn also expressed concern about the valuation because it lowered GE’s rating to perform, after performing better since November when it removed its price target. He said his downgrade was based on valuation, as the stock exceeded its previous price target of $ 13.
Glynn wrote that a significant turnaround performance and cyclical recovery had ‘already been’ priced in ‘at current levels, but said the long duration of the debt structure and the strong liquidity now provide GE with a backdrop from the aviation downturn to to emerge from resilience. ”
Meanwhile, longtime carrier / skeptic Stephen Tusa at JP Morgan reiterates the neutral rating he had on GE over the past year, but says he still sees ‘significant downside’ to the stock, according to its $ 5 price target, which is 59% lower than the current levels.
Tusa said that although he agrees that a simplified GE is positive following the GECAS agreement, he said that the agreement and the financial outlook only “crystallized” the “real bear case” for him.
As GECAS is no longer in the picture, Tusa said there are no more GE Capital assets for Wall Street bulls to argue that there is enough value / equity to support related debt.
‘In short, with the free money of the [COVID-19] discussing the vaccine trade, the narrative of GE as a turnaround is gaining traction with a V-shape in cash and earnings are the numbers that show a sustainable high leverage above the target [more than] ‘$ 70 billion in actions based on the basics we would characterize as mixed with expectations of future earnings that remain too high,’ Tusa wrote.
However, UBS ‘Markus Mittermaier was a little more forgiving, as he reiterated the buyout figure he had at GE since December 2019 and his share price target of $ 15, which implies a profit of 24% from current levels.
He said that despite the close “hits” for FCF, FCF is a clear positive strategic strategy due to the GECAS agreement. He said he understands for the very short term the “negative interpretation” of some elements of the deal and prospects, such as the hit until 2021 FCF to further reduce the factoring balance, as well as the increase in net debt due to the integration thereof. GE Capital in GE’s balance sheet.
“That said, it has not taken away the overhang of future settlement of settlement, and the total debt that we believe will increasingly make investors willing to ‘underwrite’ the new GE that emerges, which should help multiples, ‘underwrites’. written. “When we think, we think [Wednesday] was an important step in creating a simpler GE with significantly fewer ‘legacy overhangs’ and improved strategic option in the medium and long term. ‘
GE’s share has risen 47.3% over the past 12 months, while the SPDR Industrial Select Sector Bursary Fund XLI,
increased by 46.7% and the S&P 500 index SPX,
it increased by 44.0%.