Investors have become increasingly concerned about GE's leverage, especially after management disclosing the expansion of federal investigations, according to UBS analyst Steven Winoker. Recently appointed Chief Executive Officer Larry Culp said there are "no plans for an equity raise," even amid GE's slowing cash flow generation.
"While GE's free cash generation has deteriorated over the past 18 months, and leverage remains an issue, liquidity is not," Winoker wrote in a Nov. 6 research note. "Between cash on hand, committed credit facilities, divestitures, and industrial free cash flow, we calculate approximately $72 billion in near-term sources of liquidity at GE."
Separately, GE announced it was selling its Current LED lighting business to private equity firm American Industrial Partners. The terms were undisclosed, but the deal represents steps toward making GE a leaner and a more focused business as it executes on management's plan to divest $20 billion of assets. It also was GE's second deal in as many days.
On the back on these deals, UBS' Winoker reaffirmed his conviction in Culp's turnaround capabilities and believes he can lead an improvement in GE's various businesses. The 55-year-old CEO was the former Danaher Corp. (DHR - Get Report) CEO who joined GE's board in April and was appointed CEO on Oct. 1. During Culp's time at Danaher, the company was known for deal-making, lean management and strong financial performance.
"Even with the many contingent liabilities GE faces (lawsuits, investigations, contributions to GE Capital), these are not immediate cash calls and we have a hard time envisioning a GE liquidity event in the face of about $72B of cash sources available in the next six months," Winoker said.
UBS rates GE at Buy with a $13 price target.
Shares of GE rose 1.8% to $9.45 at 11:15 a.m. New York time.