General Electric Shares Jump 11% After CEO Culp Forecasts Positive Cash Flow in H2 2020

General Electric company’s shares surged about 11% after Chief Executive Officer Larry Culp said the industrial conglomerate’s free cash flow would turn positive in the second half of this year, Reuters reported.

The global digital industrial company’s shares ended Wednesday about 11% higher at $6.75; however, the stock is down more than 40% so far this year.

“We are really not waiting for the markets to come back and put the wind we had in our sails,” Culp said. “We know this is going to be a self-help story for a little bit longer,” Culp added the company’s performance in the H2 of the year will set the stage for a positive cash flow in 2021 as well, Reuters reported.

General Electric stock forecast

Ten analysts forecast the average price in 12 months at $8.40 with a high forecast of $11.00 and a low forecast of $6.30. The average price target represents a 24.44% increase from the last price of $6.75. From those ten equity analysts, five rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $8 with a high of $13 under a bull-case scenario and $3 under the worst-case scenario. General Electric had its price target lowered by Independent Research to $6.90 from $7.00 and rated “Hold”.

Other equity analysts also recently updated their stock outlook. Deutsche Bank cuts their target price to $6.25 from $6.51, Credit Suisse lowered their stock price forecast to $7 from $8, while UBS raised the target price to $8.5 from $8.

Analyst views

“While we view Aviation as a best-in-class franchise and see long-term upside on shop visits growth, we see a scenario where engines are cannibalized for available flight hours through 2021 and that maintenance gets deferred until 2022,” said Joshua Pokrzywinski, equity analyst at Morgan Stanley.

“Tail risks from Power, pension, and Long-Term Care are declining as 2021 brings a wall of cash and strong improvement in risk/reward. We see a clear path to 2.0x Industrial Net-Debt/Ebitda in 2020, and as cash flow ramps in 2021 and beyond, we see a broadening set of strategic opportunities.”

Upside and Downside Risks

Upside: 1) LTC could be a lower charge than $1 billion base case expectations. 2) Gas power generation could exceed 25-30 GW net additions per year, highlighted by Morgan Stanley.

Downside: 1) LTC remains an opaque liability that could result in a $9 billion in additional cash funding. 2) Our Global Utilities teams view the annual gross additions to gas power generation as being 25-40% lower than 2019 levels. 3) GE Power may not participate in China growth at historical levels.

Check out FX Empire’s earnings calendar