General Electric (GE), whose stock famously crashed in 2018, may rebound sharply in 2019 due to four developments that GE bull Nick Heymann says are likely to occur. The William Blair analyst expects the beaten down industrial conglomerate to sharply boost its liquidity, step up the breadth and pace of asset sales, fund more than $10 billion of remaining underfunded loss reserves at GE Capital’s long-term health-care reinsurance, and improve its credit rating on Wall Street faster than currently expected (see table below). These developments would ultimately make GE a safer investment in the near term, leading Heymann to argue that investor perception of the stock will continue to improve, per story in Barron’s.
Heymann has covered GE for decades and is known both for his highly accurate, and often highly critical, forecasts of GE's financial results.
“We believe there is a rising likelihood GE may accelerate the timing and size of its original plans for the IPO of GE Healthcare, that prospects for GE Commercial Aviation Service (GECAS) to be sold at or above book value are now rising, and that the noncore 20% of GE Digital recently recast into a separate business could lead to it being monetized,” wrote Heymann per the article. He expects these positive tailwinds to boost GE stock even as some analysts expect the company to release a weak earnings report at the end of January.
4 Factors That Could Boost GE Shares
- GE to boost liquidity
- Step up the breadth and pace of asset sales
- Fund over $10 billion of remaining underfunded loss reserves
- Improve its credit rating on Wall Street
Source: William Blair
'End of Apocalypse Scenarios Now at Hand'
GE suffered a series of sell-offs in 2018 amid the firm’s removal from the Dow Jones Industrial Average (DJIA) index after over a century. Shares of the industrial giant have fallen 50% from their 52-week high but have made a comeback in the new year, rising 17%. Bullish investors and analysts have applauded the appointment of a new CEO with no ties to past management, which has been blamed for GE's demise.
In Heymann’s note entitled “End of Apocalypse Scenarios Now at Hand; Look for Expanded Liquidity to Accelerate GE’s Resurrection and Rectify Risk Profile,” he reiterated an outperform rating on GE shares.
The William Blair analyst foresees investors taking into account GE’s lower risk as the conglomerate sells more noncore businesses, boosting its financial position and clearing concerns about underfunded liabilities and litigation risk. Heymann expects GE to improve its liquidity by as much as $55 billion. Further, he expects the additional cash to allow GE to pay down debt, to right-size its Power global large steam and gas-turbine production capacity ahead of expectations, and shore up reserves for litigation .
A Look Ahead
Not everyone is so upbeat. Analysts at JPMorgan say ‘unfavorable’ Q4 results to be announced January 31 risk dragging down GE's stock again, per CNBC. Stephen Tusa, who upgraded GE to neutral last month after two years of holding an underperform rating, warns that if investors “don’t get much tangible” in regards to certainty in the path forward, “it will reinforce the Bear case that there is no concrete silver bullet plan.”