Write-Downs At General Electric's Aviation Division Are Manageable, Says Bullish Analyst

Although General Electric Company’s GE Capital Aviation Services segment, while not immune to COVID-19 headwinds, has a strong and resilient business model, according to BofA Securities.

The General Electric Analyst: BofA’s Andrew Obin maintained a Buy rating on General Electric with an $11 price target. 

The General Electric Thesis: Investors are concerned about potential write-downs and the cash contribution from the division through 2021, Obin said in a Monday note. (See his track record here.)

The write-downs appear manageable and the business should continue to be cash flow positive, the analyst said. 

The GECAS segment has been profitable since its formation in 1993, and its profits have grown by 5% annually over the last 15 years, he said. 

Although the pandemic will exert pressure on the company’s GECAS and Aviation segments, several aspects of GECAS could likely “help to dampen the volatility,” Obin said. 

BofA expects asset impairments to range between $800 million and $2.2 billion, given lower lease rates and residual values, the analyst said. Assuming impairments of $1.5 billion, the GECAS business will record a loss of $800 million in 2020, he said. 

GECAS could average free cash flows of $1.5 billion per year between 2020 and 2022, according to BofA. 

GE Price Action: Shares of General Electric were down 0.62% at $7.20 at the time of publication. 

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Photo by Jud McCranie via Wikimedia.