Morgan Stanley is now Wall Street’s biggest General Electric bull after analyst Josh Pokrzywinski raised his target for the stock Thursday from his previous forecast to $ 17 from $ 13.
GE shares briefly topped $ 14 per share after markets opened Thursday and hit a new 52-week high before earnings were reduced and traded around 1%. The stock is up about 25% since Jan. 1.
Pokrzywinski noted that there is “a lot of room for growth in aviation” which is usually the company’s most profitable business. That unit hit the Boston-based conglomerate during the pandemic when global travel stalled and demand for jet engines made by GE soared.
Larry Culp, CEO of GE, said at a Barclays Industrial Conference last month that he expected a “pronounced” recovery in aviation this year.
Increasing demand for repairs
In particular, GE Aviation makes most of its profit from repairing, not selling, its engines through long-term maintenance contracts.
The analyst forecast that demand for GE jet engine repairs could return to 2019 levels in 2023. He added that he was optimistic that these repairs “have been delayed rather than postponed and will support further growth beyond 2023”.
Culp and other GE executives are expected to keep investors updated on the company’s outlook for 2021 next week.
Pokrzywinski said he viewed the event as a “catalyst” that could set the company on a “multi-year path to above consensus” free cash flow that is being closely watched by investors as a sign of the company’s health and solvency .
Money burns in the first quarter
Last month, Culp announced to an audience at the Barclays event that the company expects to burn cash in the first quarter of 2021.
However, he noted that cash generation will still be higher than it was a year earlier when the company burned $ 2.2 billion. The first quarter of the year is GE’s weakest historically, and Culp noted that the expected cash outflow “is nothing more than what we normally see at the start of a new year.”
GE reported in January that it generated $ 4.4 billion in industrial free cash flow for the fourth quarter, which temporarily skyrocketed the stock.
Culp predicted the company would generate industrial free cash flow of $ 2.5 billion to $ 4.5 billion in 2021.
GE stocks have risen steadily since the strong earnings report for the third quarter in October when the company posted a surprise profit.
The stock is up on positive vaccine news and optimism that Culp is creating growth in the conglomerate’s industrial sectors, including power and renewables.