General Electric Shares Active as JPMorgan Analyst Tusa Lifts Rating, Price Target

Longtime GE bear Stephen Tusa concedes there is "little debate about sentiment" in the stock as CEO Larry Culp's turnaround continues to impress.
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General Electric Co.  (GE) - Get Report shares were active Monday after one of the most respected analysts on Wall Street, and a long-time critic of the company's prospects, boosted his price target on the improving industrial giant.

"We were wrong", JPMorgan analyst Stephen Tusa said of the bank's previous call on the stock, which was made in April of last year, as he raised his target price  by $3, to $8 per share, and boosted his rating to "neutral" from "underweight" amid a six-month rally that has added more than 30% to the company's market value.

"We are upgrading GE as the spread between our free cash-flow estimate and consensus is narrower after a better-than-expected 2019, helped by less de-risking at GE Capital Services than we had thought around which it would take a recession to influence (which) is not our base case," Tusa wrote.

"With zero sells and multiple upgrades since CEO (Larry) Culp took over, we see little debate about sentiment, and of note, GE has re-rated on a mark-to-market basis since year-end and now trades at a premium," Tusa noted.

GE shares were marked 3.3% higher in pre-market trading following release of the Tusa note on Monday, but slipped 1.1% lower as markets weakened after the opening bell to trade at $10.98 each.

Prior to last week's broader market sell-off, in fact, GE shares were trading at the highest levels in nearly a year, supported in part by stronger-than-expected fourth quarter earnings.

GE also said its 2020 industrial profits and cash flow will improve notably this year, as the ongoing turnaround under Culp continues to win over investors.

Looking into the 2020 fiscal year, GE said it sees adjusted earnings in the range of 50 cents to 60 cents per share and industrial free cash flows of between $2 billion and $4 billion. 

GE's profit outlook, however, is at least partly contingent on a mid-2020 return to service for Boeing's  (BA) - Get Report grounded 737 MAX aircraft, and fell modestly shy of the Refinitiv forecast of 66 cents per share. 

GE also said it is working closely with Boeing Co. BA to ensure the safe return to service of the grounded 737 MAX, which the planemaker has provisionally guided to the middle of this year. GE, along with France's Safran, participates in a consortium that builds engines for the troubled commercial aircraft.

GE said revenues from its power division were essentially flat to last year, at $5.4 billion, while renewable energy revenues rose 2% to $4.7 billion.

Industrial division revenues are expected to rise by a low single-digit percentage this year, excluding any potential mergers or takeovers, while profit margins improve by as much as 75 basis points.