General Electric Co. (GE) closed unchanged at $14.71, ending a streak of four gains in the last five trading days, following a bullish call from Gabelli & Co. analyst Justin Bergner, who initiated coverage of GE with a buy rating Monday.
GE has lost its shine on Wall Street because investors have focused on a deteriorating long-term care insurance business plus mismanagement at the company's oil and gas and power business units, Barron's reported Bergner as saying. Bergner said he sees GE stock ending this year at $21, implying about a 42% rally between Monday's close and the new year.
"Notwithstanding some weakening end markets and mistake of prior management, GE currently has the right leadership in place, with high-quality assets in aviation and healthcare that underpin an attractive stock with a margin of safety," Bergner wrote. He lauded the efforts of new CEO John Flannery and new Chief Financial Officer Jamie Miller for "taking the right steps to drive free cash flow, surface asset value and simplify the company."
Outside of healthcare and aviation, GE's other businesses could add another $8.50 a share to the company's valuation this year and $10 per share next year, Bergner said. The company's stock is down 16.1% since the start of this year and down 46.7% in the last 12 months.
The analyst argued that GE could best simplify its businesses by selling its oil and gas and transportation units to focus on aviation, power and healthcare, eventually spinning off the healthcare unit. "A simplified GE should operate better and with more effective corporate oversight," Bergner said.
Bergner admitted that GE's high-debt situation could appear harrowing, but the analyst said he sees "a path to $20 billion in asset sale proceeds between a healthcare IPO and sales of non-core assets."
"We understand the risks associated with leverage/liquidity, negative value at GE Capital, and peaking aviation margins, but believe there is a clear path forward for GE with stakeholders who want to see the company succeed," Bergner wrote. "Assuming there are no more shoes to drop from prior management's actions, we expect asset sale catalysts and troughing earnings to create a positive runway for GE shares in the coming two to three years."