Could General Electric (NYSE:GE) stock finally turn the corner? Another analyst just turned positive on the equity, upgrading the stock to a “buy.”
The conglomerate faced several setbacks this year. However, asset sales helped to reduce debts. Also, as profits grew and cash flows improved, both the outlook and the GE stock price continued to show improvement. As events continue to unfold, the speculative buy case for General Electric stock only becomes stronger.
Upgrade Validates Improving Outlook
Investors and analysts have gradually warmed to the troubled industrial giant. With the GE stock price at just above $11 per share, it trades near 52-week highs.
Moreover, on Dec. 12, Markus Mittermaier, an analyst with UBS (NYSE:UBS) upgraded General Electric stock from a “hold” to a “buy.” He also raised his price target to $14 per share, up from the previous $11.50 per share, calling 2020 an “inflection year” for GE.
The upgrade may also help boost GE stock, which has seen little price-related movement since the post-earnings bump of early November. The mildly bad news in November did not help.
Stephen Tusa, an analyst at JPMorgan Chase (NYSE:JPM), maintained his negative outlook and $5 per share price target due to the continued restructuring of GE Power. Also, CFO Jamie Miller announced her departure from the company. Carolina Dybeck Happe, CFO of shipping giant A.P. Moller-Maersk (OTCMKTS:AMKBY), will take over.
GE stock has also faced hiccups throughout the year. The grounding of all Boeing (NYSE:BA) 737 MAX jets led to delays in orders at its aviation division. Moreover, Bernie Madoff whistleblower Harry Markopolos called GE “a bigger fraud than Enron.”
GE Recovers Quickly from Setbacks
These setbacks only slowed GE stock down temporarily. It has risen by about 55% since the beginning of 2019. I think this has occurred for good reasons. As debts fall and cash flows improve, GE has begun a virtuous cycle that has noticeably improved a compromised balance sheet.
Still, investors may want to wait for additional bad news before buying GE stock. The forward price-earnings (PE) ratio stands at about 16.4. This seems like a fair value for a company expected to increase its profits by 9.8% in fiscal 2020.
Moreover, investors cannot completely rule out that GE Capital still holds toxic assets left over from the financial crisis. The massive drop in GE stock from the Markopolos report shows that this fear has not completely disappeared.
However, Ian Bezek makes a significant point here. He said the Markopolos report had the effect of increasing GE’s credibility. It brought doubts to the forefront and put these concerns in a place where CEO Larry Culp could strongly refute them. Indeed, as more time passes, the odds of toxic assets sinking GE stock continue to fall. Still, investors need to remain aware of this possibility.
Furthermore, while I expect GE stock to move higher generally, I would continue to expect short-term setbacks. General Electric stock fell for a time on the 737 MAX news as well as right after the Markopolos report. Each led to a temporary drop in the equity. I would expect similar occurrences in 2020. Hence, I would wait for one of these buying opportunities to invest.
However, the $96.41 billion in debt has fallen to a level near the market capitalization. As profits rise and cash flows improve, the speculative recovery in GE stock appears to remain on track.
The Bottom Line on GE Stock
Another analyst upgrade lends credence to the improving speculative buy case on GE stock. Debt levels continue to fall, and now, GE stock is finally on the verge of holding a market cap higher than its long-term debt. Moreover, both profits and cash flows continue to improve. This led to a UBS analyst calling GE stock a “buy” and raising the price target to $14 per share.
General Electric continues to face setbacks, and in recent weeks, GE stock has not seen any significant movement. Moreover, bad news has and probably will continue to lead to temporary challenges. Furthermore, as current valuation and growth levels, it becomes harder to argue that GE remains a cheap stock.
However, the big picture points to massive growth in GE stock as its recovery continues. As the company cleans its balance sheet and turns its cash flows positive, the outlook for General Electric stock should continue to show gradual improvement.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.