Why This General Electric Analyst Is Buying The Dip

General Electric Company GE shares have pulled back about 14% since Nov. 9, when the conglomerate announced its proposed plan to splinter into three public companies focusing on energy, aviation and health care.

An analyst at Credit Suisse said the weakness presents a buying opportunity.

The GE Analyst: John Walsh upgraded GE shares from Neutral to Outperform and maintained the price target at $122.

The GE Thesis: GE is executing on its transformation to separate into three public companies, and it remains poised to benefit from a cyclical recovery in 2022, analyst Walsh said in a note.

"We also see potential for a 'rush for propulsion' as airline customers have managed green time throughout the pandemic," the analyst said.

In December, GE noted that Aviation revenue and free cash flow could return to pre-pandemic levels in 2023, he said.

Related Link: 'A Statement Of Confidence': General Electric Analysts React To Breakup Plans

The cyclical recovery and FCF execution, Walsh said, will drive the stock higher despite a "lack of catalyst" narrative into the spinoffs. Unlike other large conglomerate simplifications, GE has positively revised guidance higher since the announcement, the analyst said.

GE still has some strategic long-term uncertainties, including insurance and aviation self-funding, which keeps Credit Suisse from naming the company as a top pick, he said. 

The $122 price target, the analyst said, is based on 30.5 times Credit Suisse's 2022 adjusted EPS estimate of $4 per share. This represents an industrial FCF yield of 4.1% on the firm's 2022 estimate.

GE Price Action: GE shares were trading 3.01% higher Tuesday morning at $99.14. 

Related Link: General Electric Bounces Back After Announcing Acquisition: What's Next?