Citi: General Electric's Recovery 'Could Be More Significant' Than Investors Realize

General Electric Company GE shares traded higher by another 4.5% on Wednesday after yet another analyst had good things to say about the stock.

Citi analyst Andrew Kaplowitz reiterated his Buy rating for GE.

The Thesis

After meeting with General Electric CEO Larry Culp, Kaplowitz said he is more optimistic about GE’s turnaround efforts. While GE is far from out of the woods just yet, Kaplowitz said the company’s near-term goals of +/- $1 billion in free cash flow and EPS of between 55 cents and 65 cents in 2019 is achievable.

Kaplowitz said the company’s top priority remains derisking its balance sheet and simplifying its business. Despite concerns over the ongoing U.S. trade war with China, he said investors may be underappreciating how much progress GE is making toward these goals.

“Longer-term, GE’s runway for improving results in 2020 and beyond could be more significant than we think some investors appreciate given what appears to be an increasing focus on fundamental changes to operational and management practices that could drive better and more consistent results over time,” Kaplowitz wrote in a note.

Other GE Headlines

Kaplowitz’s comments come after analysts from Deutsche Bank and Wolfe Research dismissed accusations by Bernie Madoff whistleblower Harry Markopolos that GE has used misleading accounting to deceive investors about its cash balance and insurance reserves. Analysts from both firms said Markopolos’ report fails to make a compelling case for fraud.

In addition, Danaher Corporation DHR announced on Tuesday it has priced a €6.25 billion senior notes offering to fund the acquisition of GE’s BioPharma Business.

Gordon Haskett analyst John Inch told Benzinga on Wednesday the Danaher news should not be a bullish catalyst for GE stock.

“GE seems to pop on any headline – that isn’t a healthy trading pattern. The deal was never in question, in my opinion – Danaher is buying BioPharma for a below-market valuation,” Inch said.

Benzinga’s Take

Dismissing the fraud accusations removes one potential overhang for GE stock, and the Danaher news is certainly a positive. Management optimism is also comforting for concerned investors after so many guidance cuts and earnings misses, but at some point GE will need to demonstrate real traction toward long-term earnings and cash flow growth.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Photo credit: Bubba73, via Wikimedia Commons