Morgan Stanley Upgrades GE On Improving Cash Flow Outlook

After a miserable few years for General Electric Company GE investors, the stock jumped 3% on Thursday after one analyst upgraded GE and said the company’s fundamental outlook is finally improving.

The Analyst

Morgan Stanley analyst Joshua Pokrzywinski upgraded GE from Equal-Weight to Overweight and raised his price target from $11 to $14.

The Thesis

Pokrzywinski said his outlook for 2021 GE cash flow suggests risk may finally be to the upside.

In the near-term, disruptions from the 737 Max grounding will likely weigh on GE’s 2020 cash flow, Pokrzywinski said. However, the 737 Max issues should be long forgotten by 2021, allowing GE to finally turn the corner from a fundamental perspective.

“We expect 2021 Aviation FCF to expand by $1B as the headwind rolls off and the cash from BA starts to come in,” Pokrzywinski wrote in the note.

He said nearly all the stock’s value is derived from its Aviation business.

In addition to Aviation, Pokrzywinski said the company’s struggling Power business can easily get back on track. While long-term challenges in the gas power market will likely persist, Pokrzywinski said GE can improve the situation significantly by managing expenses, restructuring its business, eliminating its lower-quality backlog and pulling forward cash. These goals are all part of GE management’s projected $2.3 billion increase in Power FCF from 2018 to 2021.

For now, Pokrzywinski said GE will likely focus on improving its balance sheet, growing cash flow and cutting costs in its Power segment.

Benzinga’s Take

This type of analyst commentary focusing on improving GE fundamentals rather than a hypothetical bullish story is exactly what investors have been waiting for for years. While Pokrzywinski’s cash flow commentary is focused primarily on 2021, improving sentiment in 2020 could be a bullish catalyst in itself for GE.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

Related Links:

How 737 Max Delays Are Impacting General Electric

United Airlines Posts Strong Profits Despite MAX Headwinds

Photo credit: Momoneymoproblemz, via Wikimedia Commons