UBS’s Mittermaier lifts price target as GE’s transformation accelerates
Shares of General Electric Co. got a boost Friday, from a bullish call by UBS analyst Markus Mittermaier, who cited an acceleration of the transformation into a “simpler” industrial company.
Mittermaier reiterated the buy rating he’s had on the stock since December 2019, while lifting his price target to $17 from $15. His new target implies a 26% gain from current levels, and represents a price that hasn’t been seen since January 2018.
The stock GE, 0.59% rose 0.5% in morning trading. but pared an earlier gain of as much as 2.8% at its intraday high of $13.83.
“The 2021 Outlook Meeting was an important step toward articulating the creation of a simpler GE with significantly fewer ‘legacy overhangs’ and improved strategic optionality medium and long term,” Mittermaier wrote in a note to clients.
The outlook meeting refers to GE’s Analyst Day on March 10, at which the company laid out its plan to be “a more focused, simpler, stronger industrial company,” create value for its shareholders and that “significantly de-risks” the company by reducing debt.
The company also confirmed a $30 billion deal to combine its GE Capital Aviation Services (GECAS) aircraft leasing business with AerCap Holdings NV, and proposed a reverse 1-for-8 reverse stock split.
Investors had high expectations for the Analyst Day, with the stock soaring 21.3% in the month leading up to the event. So despite GE’s upbeat plans, the stock tumbled 12.4% in two days. At that time, Mittermaier said he understood investors’ “negative interpretation” of the GECAS deal’s impact on near-term free cash flow, but stressed that it was a “clear positive strategically.”
At current prices, the stock has recovered nearly three-quarters of what it lost after the Analyst Day.
On Friday, despite the raised price target, which Mittermaier said was derived from a blend of free-cash-flow yield and a sum-of-the-parts analysis, he trimmed his first-quarter earnings-per-share estimate to 2 cents from 3 cents, cut his 2021 EPS outlook to 26 cents from 29 cents and lowered his 2022 EPS forecast to 65 cents from 76 cents.
The new estimates are still above the FactSet EPS consensus of 1 cent for the first quarter, 23 cents for 2021 and 51 cents for 2022.
GE is scheduled to report first-quarter results on April 27.
GE’s stock has climbed 25.1% year to date, while the SPDR Industrial Select Sector exchange-traded fund XLI, 0.48% has rallied 12.9% and the S&P 500 index SPX, 0.35% has gained 9.2%.