Goldman Sachs Calls General Electric The 'Ultimate Self-Help, Vaccine Leverage Story'

It’s been a rough few years for General Electric Company GE investors, but the stock got a huge boost on Friday from a major Wall Street firm.

The Analyst: Goldman Sachs analyst Joe Ritchie reinstated coverage of GE with a Buy rating and $10 price target.

The Thesis: In his initiation note, Ritchie said GE is the “ultimate self-help, vaccine leverage story” in the industrial sector. He also believes GE will emerge even stronger in a post-pandemic economy.

Ritchie admitted he might be a little bit early on the timing of his call, but he believes GE’s fundamentals have bottomed and the stock is an excellent buying opportunity at cyclical lows.

“Our base case assumption is that a vaccine will be mass distributed over the next 12 months and, under this scenario, we believe the second derivative improvement on the resumption of air travel will be significant and many of the underlying concerns on GE’s balance sheet will fall to the background,” Ritche wrote in the note.

Related Link: General Electric Analyst Downplays SEC Threat, Shareholder Lawsuits A 'Concern'

Goldman is projecting -$3.2 billion in industrial free cash flow for GE in 2020, but Ritchie said FCF will improve as the company’s higher-margin businesses, such as Gas Power Services and Commercial Aftermarket, recover from the downturn.

In fact, Goldman’s industrial FCF projections of $1.2 billion in 2021, $3.6 billion in 2022 and $5.6 billion in 2023 are all ahead of Wall Street consensus expectations.

Ritchie also said the market is underappreciating the potential improvement in GE’s Renewable Energy businesses.

Benzinga’s Take: The timing of the Goldman initiation was much needed for GE investors after the company disclosed it received a “Wells notice” from the Securities and Exchange Commission notifying the company the SEC is considering civil action against the company earlier this week.

However, GE investors are likely growing tired of hearing about how a turnaround is just around the corner after years of underperformance and lackluster cash flow and earnings numbers, and the stock remains a show-me story at this point.