We’re all getting used to bad news, but there are some good things happening for General Electric (NYSE:GE) lately. Boeing’s (NYSE:BA) recent reopening of a key factory, along with recent bullish calls by three analysts, are certainly positive for GE stock. Meanwhile, the results of the company’s Healthcare and Power units should improve going forward.
Although GE’s first-quarter results, slated to be reported on April 29, could cause the shares to drop, medium-term and longer-term investors should buy the shares either before or after its Q1 results.
Key Positives for GE’s Aviation Unit
Boeing’s decision to re-open its factory in Everett, Washington, is definitely positive for GE. In my opinion, unless Boeing was relatively sure that demand for its airplanes will rebound within a few months, it would not have reopened the factory so soon.
That’s especially true because opening the factory not only has increased the company’s costs, but has also left it open to criticism that it’s exposing its workers to catching coronavirus.
Boeing’s optimism is in line with my own thinking on the outlook for air travel in the U.S. In a recent column on United Airlines (NYSE:UAL), for example, I predicted that demand for airplane tickets could return to “well over 50% of normal levels” six weeks from now.
Of course, the idea that demand for airplane tickets could surge within a couple of months is very bullish for GE’s Aviation unit. If airlines’ revenue starts meaningfully increasing, they will order more planes from Boeing and Airbus (OTC:EADSY). Boeing and Airbus, in turn, will then order more plane engines from GE.
Three Analysts Remain Upbeat on GE Stock
Three analysts recently cut their price targets on GE stock, but all three kept their price objectives well above the shares’ current levels. UBS’ Markus Mittermaier cut his price target on the shares from $12 to $9, while Citi’s Andrew Kaplowitz lowered his target to $9 from $11. Both Mittermaier and Kaplowitz expect GE’s Aviation business to rebound meaningfully in 2022.
However, both analysts expect the company to generate a small profit in 2020, as Mittermaier’s earnings per share estimate for this year is 8 cents and Kaplowitz predicts that the company’s EPS will come in at 20 cents in 2020. For 2022, they expect EPS of 70 cents and 55 cents, respectively.
Calling GE’s Aviation business “stalled but not broken,” Bank of America’s Andrew Obin is more bullish on GE and its Aviation unit. He wrote that planes have to undergo aftermarket services. As a result, the analyst expects GE’s aftermarket parts and services business to rebound more quickly than its engine sales, and he noted that the former business is more lucrative for GE than the latter one. Obin kept an $11 price target and a Buy rating on the shares.
The Healthcare Unit Is Getting a Boost
California, Texas, New York, Oklahoma, and Alaska are among the states that will either resume allowing elective surgeries soon or have already done so. I assume that hospitals in many other countries are resuming elective surgeries as well.
That’s good news for GE’s Healthcare unit, whose products are used in many elective procedures.
At the same time, the unit will likely continue to sell many products, including ventilators and face shields, used to treat patients with the coronavirus.
More Good News for the Power Sector
In my previous column on GE, I wrote that, “since electricity is considered essential by every government, most projects involving the construction and maintenance of power plants are still proceeding around the world.” Consequently, I contended that the company’s Power unit “should not be significantly affected by the coronavirus crisis.”
I’m even more sure of that now, after reading that U.S. natural gas demand and production reached record levels last year. Clearly, as I’ve previously predicted, the use of natural gas as an electricity source is continuing to climb. That’s great news for GE’s Power sector.
The Bottom Line on GE Stock
Boeing’s resumption of production at a key factory is very good news for GE, and the fact that three analysts’ targets are well above the current stock price is also quite encouraging for the company’s long-term outlook. Further, there are good reasons to be optimistic about its Power and Healthcare units. With the stock trading at a price-sales ratio of just 0.6, it’s attractive for longer-term value investors.
As of this writing, Larry Ramer owned shares of GE stock. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
