Earlier this month, Credit Suisse analyst John Walsh said that “it takes a village” to assess General Electric (NYSE:GE) stock.
I don’t agree with that sentiment. Heading into the company’s third-quarter earnings, due Oct. 30, I remain convinced that prior results show that the company’s aerospace unit remains strong, while its debt load is manageable. Furthermore, CEO Larry Culp — who joined the company well after its difficulties began — is quite reassuring.
Consequently, I believe that Culp would not have taken the job unless he thought he could revive GE stock. Moreover, I believe that Culp is not the type of executive who would be untruthful or hide the gruesome skeletons that the GE stock bears keep warning about. As a result, when GE says that it set to significantly reduce industrial debt by 2020, I tend to believe it.
I also remain convinced that GE’s power unit will benefit from increased use of natural gas and electricity. Wind energy will tremendously boost the renewables unit over the long run.
GE Bulls Join the Ring
Still, the fact that many more GE stock bulls are emerging from the woodwork is quite encouraging. One near-bull is Credit Suisse’s Walsh, who has a “hold” rating and a $10 price target on General Electric stock. After speaking with his firm’s life insurance analyst, Walsh reports that Credit Suisse “forecasts minimal funding requirements versus investor expectations.” In other words, the insurance analyst’s conclusions agree with my instincts, which indicated that the wild accusations of Harry Markopolos were ridiculous.
In the middle of last month, Walsh believed that the GE stock price could jump to $13 in the wake of its third-quarter results if its earnings showed that free cash flow was rising and its balance sheet was improving.
Also very upbeat on GE stock is T. Rowe Price’s David Giroux. Noting that Giroux has “crushed” competing stock pickers over the last decade, Barron’s quotes Giroux as saying he’s “confident” that Culp will be able to right GE’s ship. Praising the company’s aerospace, health and renewables businesses, he thinks that the GE stock price can double or triple in three to five years. And he doesn’t even sound upbeat on power’s outlook.
Other Positive Catalysts
Multiple other recent developments are making me upbeat on GE stock heading into its Q3 earnings.
The company has apparently fixed the problems with its GE9x engine and delivered it to Boeing (NYSE:BA). Boeing expects its troubled Boeing 737 Max plane to be ready to resume flying by the end of the year. The plane’s return to flight should boost GE’s results.
GE continues to make lucrative wind-energy deals, providing turbines for two large East Coast projects, selling electricity from its Swedish wind farm to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and becoming the preferred turbine manufacturer for the world’s largest offshore wind farm.
Also very encouraging are the additional steps that Culp has taken to improve the conglomerate’s balance sheet. Specifically, he froze the company’s pensions and continued the process of reducing GE’s stake in Baker Hughes (NYSE:BKR).
Finally, multiple pension funds own GE stock as of the end of Q3. Ohio’s State Teachers Retirement System owned 5.2 million shares of General Electric stock as of the end of September, although it sold 1.3 million shares during the quarter. Virginia’s pension fund bought 571,000 shares of GE stock in Q3 and Alaska bought over 456,000 shares, bringing its total to 1.6 million shares.
The Bottom Line on General Electric Stock
Culp remains trustworthy and GE is making progress on multiple fronts. Moreover, more pension funds and experts are jumping on the GE stock bandwagon. As a result, the company’s Q3 results should be strong and long-term investors should continue to buy General Electric stock.
As of this writing, Larry Ramer owned shares of GE stock.
