General Electric Analyst Says New CEO Contract A 'Benefit For GE Shares'

General Electric Company GE shares traded slightly lower on Friday after the company extended the contract of CEO Larry Culp through 2024.

One Wall Street analyst said Culp’s new contract eliminates one uncertainty for GE investors, and Culp’s turnaround efforts were working prior to the COVID-19 outbreak.

The Analyst: Bank of America analyst Andrew Obin reiterated his Buy rating and $11 price target for GE.

The Thesis: Obin said the pandemic-diven downturn in air traffic has pulled the rug out from under GE’s Aviation division and has delayed the company’s turnaround timetable. However, he said Culp’s extension is a “benefit for GE shares.”

Prior to the outbreak, Obin said GE was making progress on several fronts, including boosting liquidity and lowering leverage via asset sales. Obin said even GE’s Power unit was potentially on track to generate positive free cash flow in 2021, although he said that would have been a major challenge.

In the post-COVID world, Obin said GE’s primary challenge is navigating the commercial aviation downturn.

“GE faces trade-offs between pricing and market share in the commercial aftermarket space,” Obin wrote in a note.

So far, he sees positive signs of GE’s focus on preventing market share losses to independent shops and heavier reliance on used parts among airlines is working.

In the medium-term, Obin said improving FCF should help drive GE’s share price higher.

Benzinga’s Take: It seems GE’s financial situation is far better than it has been in recent years, and the company’s balance sheet is stable and flexible enough to endure yet another difficult year. However, GE investors are likely growing tired of hearing about how a turnaround is just around the corner after years of underperformance and lackluster FCF and earnings numbers.

Related Links:

2020 May Be Another Lost Year For General Electric, But BofA Is Still Bullish

Revisiting Harry Markopolos' Call That 'GE Is One Recession Away From Chapter 11'

Photo credit: Momoneymoproblemz, via Wikimedia Commons