How General Electric Is Inching Towards Becoming A 'Normal' Industrial Stock

General Electric Company GE is taking steps to become a "normal" industrial stock by easing investor concerns with its GE Capital business, according to BofA Securities.

The GE Analyst: Andrew Obin maintains a Buy rating on GE's stock with a $15 price target.

The GE Thesis: Investors have been "uncomfortable" with GE Capital for more than 10 years but management's move to merge the aviation leasing business GECAS with AerCap will reduce GE Capital assets by around 25%, Obin wrote in a note. Once finalized, GE will then consolidate GE Capital with GE Industrial and delays deleveraging at GE Industrial by one year.

Meanwhile, GE will receive around $6 billion of AerCap equity and this represents a premium above BofA's tangible book value estimate of $5 billion for GECAS.

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"Given lockups, it will take GE at least into 2023 to exit the AerCap stake," the analyst wrote in the note. "Thus the GECAS monetization will take place several years into the broader aviation recovery and likely reflects AerCap's ability to realize synergies from the combination."

While investors may have some concern with GE's eight-to-one reverse split announcement, the company will nevertheless evolve to an industrial company with a "simpler structure" in terms of accounting, leverage, free cash flow and margins. This could help expand GE's investor base and narrow the stock's valuation discount versus its peers.

GE Price Action: Shares of General Electric were trading higher by 3.8% to $13.06 at publication time.

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