General Electric Shares Jump After Morgan Stanley Rating, Price Target Boost

GE shares look set to halt a five-day skid linked to its Boeing 737 MAX exposure after analysts at Morgan Stanley boost their rating and price target on the stock.
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General Electric Co. (GE) - Get Report shares traded higher Thursday after analysts at Morgan Stanley boosted their trading and price target on the stock ahead of its fourth quarter earnings report next week.

Morgan Stanley analyst Joshua Pokrzywinski, who reinstated his coverage on GE in September of last year, lifted his rating on the stock by one notch, to overweight, with a $3 improvement to his price target, which now stands at $14 per share. Pokrzywinski cited what he considered to be declining tail risks from GE's power business as well as its long-term pension and healthcare liabilities. 

"As has been the case for several years, it is important to separate GE "the story" from GE's fundamentals. The story has shifted from one of financial distress to a budding turnaround," Pokrzywinski said. "We're wary of putting too much emphasis on the story, as improving sentiment likely exceeds upside to cash flow in 2020. However, we came away from last quarter believing that management was "trimming the tails" on risk, particularly with pension and long-term care."

GE shares were marked 3.61% higher in early trading Thursday to change hands at $11.78 each, a move that would extend the stock's three-month gain to around 29%.

Shares in the group have been pressured over the past week, however, falling 5.4% as investors count the cost of Boeing Co,'s (BA) - Get Report delayed forecast for the return of the grounded 737 MAX aircraft, whose engines are made by a Franco-U.S. consortium headed by GE.  

GE is set to report fourth quarter earnings on January 29, with analysts looking for a 6% improvement it its bottom line, to 18 cents per share. even as revenues fall 22% to around $26.2 billion.

One of the company's reporting metrics analysts will be keying on beyond the headline numbers, however, will be the group's industrial cash flow forecasts, which is often used as a gauge of corporate efficiency. 

GE boosted its own full-year industrial cash flow forecast in October, while holding its profit guidance in place, after a better-than-expected set of third quarter earnings figures provided yet another indication that new CEO Larry Culp's turnaround plans are starting to gain traction.

The closely-watched industrial free cash flow forecast was lifted to a range of flat to up $2 billion when compared to 2019, a notable improvement from the prior range of between negative and plus $1 billion. GE also reiterated that said it sees adjusted earnings per share in the region of 55 cents to 65 cents per share for the full year.

Culp has targeted asset sales of around $38 billion to address both the company's longer-term debt profile and its underfunded pension liabilities.

Last year, Culp reached a deal to sell GE's Biopharma division to Danaher Corporation (DHR) - Get Report for around $21 billion, and said it would trim its holding in Houston-based oil services group Baker Hughes (BHGE) - Get Report to less than 50% as it moves to raise $3 billion and reduce its overall debt.

GE said in the autumn that it would educe its pension liabilities by as much as $8 billion, and promised further near-term debt reductions, as it moves to trim its weighty balance sheet and improve financial efficiencies.

GE said it would freeze its U.S. pension plan for around 20,000 employees with salaried benefits, as well as supplementary benefits for around 700 additional employees, in a move it expects will reduce liabilities by between $5 billion and $8 billion and net debt by between $4 billion and $5 billion.

Prior to that announcement, GE's pension was estimated to have a $31 billion shortfall in terms of meeting obligations to around 620,000 current and former employees, around 430,000 of which are covered by U.S. pension law. The overall liability was last pegged at around $92 billion, and was covered by around $62 billion in assets.