Just like in September and several months before that, until now in October, General Electric (NYSE:GE) has been stuck in neutral. Bouncing between $ 100 and $ 105 per share, investors are still unwilling to send GE shares at higher prices.
To some extent, this makes sense. CEO Larry Culp has made progress in his recovery. But something else has to happen that is largely beyond Culp’s control: a full recovery for GE’s aviation unit.
Until airlines ‘get back to normal’ don’t expect the same from this flagship unit. That said, investors may be a little too pessimistic right now.
It may not happen tomorrow, next week or even next month. It may be long before aviation returns to normal that General Electric shares are heading for higher prices.
But over the next year or so, slow and steady improvements (along with aviation, the overall turnaround, and Culp’s efforts to make it a lean company) could lead to slow, steady gains. Investors who buy it today could see their patience rewarded.
GE Stock and further progress with its turnaround
As I said in August, it is still too early to say that Larry Culp has managed to fix everything that is plaguing General Electric. But given its cost-cutting and divestiture measures, it’s hard to deny that it has moved things in the right direction.
For example, cost cutting likely played a role in its ability to raise its free cash flow forecast in 2021. The outlook now projects that figure to be between $ 3.5 billion and $ 5 billion.
As for the sale of non-core assets, such as the sale of its light bulb business or the pending sale of its nuclear turbine unit, offloading those businesses helps the business and, by extension, GE shares. , in several ways.
The sale of non-strategic activities has raised billions in cash, allowing the industrial giant to deleverage its balance sheet. Referring to the sale of nuclear turbines, BofA analyst Andrew Obin noted that this latest sale “would modestly accelerate GE’s progress on FCF margins, deleveraging and strategic repositioning.”
It can be done slowly. But Culp’s big changes at General Electric are having a positive effect, and not just for results this year or 2022. As Joseph O’Dea of Wells Fargo noted, in an otherwise “ closing “, the company could see further improvement in its free cash flow. According to the analyst, free cash flow in 2023 could be around $ 7 billion. This is a marked improvement over the 2021 projections mentioned above. It also exceeds the $ 606 million free cash flow generated in 2020.
The long road back to normal for aviation
Of course, even as the situation improves for GE’s stock, it still faces the huge effect of Covid-19 on the aviation industry. Based on Transportation Security Administration (TSA) checkpoint travel figures, which show passenger throughput has returned to 70% to 80% of pre-Covid-19 levels, one would think the industry is almost back to normal.
But that didn’t mean better results for General Electric’s aerospace unit. Why? Airlines are always looking to keep their capital spending low. This is due to the uncertainty that remains about the pandemic. Variants like delta do not tell when the health crisis will finally end.
It is also a product of the airline industry’s need to reduce debt. Getting out of the pandemic came at the cost of greater indebtedness on their balance sheets. Until both issues are resolved, capital spending is unlikely to return to 2019 levels.
Again, with this factor, it makes sense why there is a lot of hesitation when it comes to adhering to the “GE comeback” thesis. A full recovery of aviation has been in the works for years. Even so, that doesn’t mean the stock stays stuck at around $ 100 per share for several years. The most likely outcome is that incremental improvements in all of its business units (aviation, healthcare, power), along with increased asset sales, will give Wall Street a reason to invest more points in them. actions.
The verdict on GE Stock
A mind-blowing rally is probably not in the cards for General Electric, unless we see Covid-19 clearing up sooner than expected. But a slow, steady recovery isn’t the worst thing in the world. This could pave the way for slow and steady gains in its share price.
Come with an “A” in Portfolio filing cabinet, the GE share is a stronger opportunity than what the market gives it as a whole. Think of it as a buy today, before the crowd changes their lukewarm view of it.
As of the publication date, neither Louis Navellier nor the InvestorPlace research staff member primarily responsible for this article held (directly or indirectly) positions in the securities mentioned in this article.
The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.
Louis Navellier, who has been called “one of the most important fund managers of our time”, broke the silence by this shocking ‘say it all’ video… Exposing one of the most shocking events in our country’s history… and the only move every American has to make today.