It’s all change at General Electric (GE). Over the past several years, the industrial giant has been through a period of transformation, targeting a reduction of the debt load and intended to steer the company toward a more streamlined business.
Watching this process take place, Morgan Stanley’s Joshua Pokrzywinski believes the undertaking has yielded the correct result.
“GE has met the major milestones of our thesis over the past 3 years, whereby management significantly reduced the tail risk of Power, leverage/pension, and insurance,” the analyst said. “We believe the next phase could be the underappreciated strategic value of the pieces, particularly Aviation.”
The focus has been on restructuring to such an extent that the company has ultimately decided that over the next few years it will split into 3 separate entities – aviation, healthcare and energy.
Not all on the Street have been convinced in this strategy, and Pokrzywinski acknowledges the overhang of “split purgatory.” Nevertheless, the analyst is on board, calling the breakup a “logical extension” of the “deleveraging progress” which will allow each piece to stand on its own. As Pokrzywinski notes above, the Aviation segment is particularly intriguing. “This is a premier asset entering a strong aerospace up-cycle underpinned by significant aftermarket growth and limited new platform launch costs over the next decade,” he noted.
Not accounting for the Covid-driven slump, the shares, despite the “major turnaround and milestones” realized over the past 2 years, have stayed “range-bound.” Going forward, given GE’s heavy aero exposure and its correlation to Covid trends, Pokrzywinski “fully expects” shares to be more volatile than most industrials.
However, looking ahead to the next year, the analyst sees the risk/reward as “attractive.”
“This should improve further in mid-2022,” said Pokrzywinski, “As seasonal cash flow and by extension deleveraging ramp, making GE a good risk/reward now and even better later as catalysts come more rapidly.”
Accordingly, following the suspension of coverage in March, the analyst resumed coverage of GE stock with an Overweight (i.e. Buy) rating and $125 price target, suggesting shares have room for ~32% growth over the next year. (To watch Pokrzywinski’s track record, click here)
Pokrzywinski’s objective is a touch below the Street’s average target of 125.82. All in all, the analyst consensus rates the stock a Moderate Buy, based on 7 Buys vs. 5 Holds. (See GE stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
