General Electric story updated with additional details in paragraphs 5,6 and 10.



) -

General Electric

(GE) - Get Report

received an "Overweight" rating from veteran analyst Nigel Coe, who relaunched industrials coverage at Morgan Stanley after joining the company from Deutsche Bank late last year.

Coe's $20 target price offers just under 8% upside versus Wednesday's $18.56 close, but Coe argues downside risk versus GE peers is much more limited and he finds the 4% yield "appealing."

While acknowledging a "healthy level of skepticism," that GE will achieve its 5-10% 2012 organic growth target, Coe believes the conglomerate will pull it off.

"The majority of GE's industrial businesses are late cycle and so we should expect superior growth as we move through the middle stages and into the latter phases of this cycle. Moreover, recent strong order activity and backlog build means that GE's equipment business is positioned to grow at least 6% organic in 2012, while service growth cadence is normally in the 5-10% range," Coe writes. He further argues "it would take a 2009-esquwe drop-off in order activity for equipment revenues to go negative."

Less clear to Coe is whether GE can generate margin expansion in 2012 since GE has generated negative leverage since 2008.P/>Still, with relatively mild inflation and pricing pressure "normalizing R&D" and "increasing executive focus," Coe argues "the tide is turning."

Coe sounds especially bullish on GE Capital, which was a millstone around the neck of GE during the crisis, but is now set to become a "cash machine," according to Coe, kicking a dividend up to the parent.

"All things being equal, we see no reason why GE Capital could not start paying a dividend right now. GE's profitability has recovered much more quickly than the street, and quite possibly, management expected," Coe writes. He projects $6.3 of earnings from continuing operations this year, which he calls "markedly ahead of its $1.6 billion trough in 2009 and roughly half-way back towards the $12.4 billion peak level reached in 2007."

To pay a dividend to the parent, GE Capital must get approval from the Federal Reserve. Coe expects the Fed to give the okay following its "stress tests" of GE Capital and other banks in the spring.

General Electric shares were down 0.54% to $18.46 shortly before noon on Thursday, slightly worse than the Dow Jones Industrial Average, which was down by 0.36%.


Written by Dan Freed in New York


Follow this writer on Twitter.

Readers Also Like:

Lose Weight, Make Money With These Stocks

21 Stock Picks That (Almost All) Experts Agree On

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.