- General Electric‘s turnaround is a “game of inches,” according to an analyst who referenced the football movie “Any Given Sunday.”
- On Thursday, General Electric CEO Larry Culp detailed the company’s 2019 outlook.
- GE has faced substantial challenges and will continue to burn cash ahead of improvements in 2020, Culp said.
- Watch General Electric trade live.
“We are in hell right now, gentlemen, believe me and we can stay here and get the s— kicked out of us or we can fight our way back into the light.”
You might recognise those words from an iconic speech from the movie “Any Given Sunday,” delivered to the team by head coach Tony D’Amato, played by Al Pacino.
“We can climb out of hell,” D’Amato says. “One inch, at a time.”
Now GE’s having to do the same, according to the RBC analyst Deane Dray, who referred to the company’s turnaround as a “game of inches” while maintaining a positive outlook on the company.
On Thursday, General Electric released its highly anticipated 2019 outlook as it continues to face questions on its debt levels and profitability targets. The company has faced a host of challenges in its businesses, which have spilled over to the company’s debt financing and sent its stock down by as much as 80% from its July 2016 high of $US31.72.
Shares have rallied 41% in 2019 amid a sharp recovery in the broader markets, as well as slew of decisions by the company to speed up its restructuring plan.
“GE’s challenges in 2019 are complex but clear,” said chairman and CEO Larry Culp. “We are facing them head on as we execute on our strategic priorities to improve our financial position and strengthen our businesses. We have work to do in 2019, but we expect 2020 and 2021 performance to be significantly better.”
In its outlook, the company noted that it could burn through up to $US2 billion of cash in 2019, but that it expects its industrial free cash flows to be positive in 2020 and 2021.
Dray noted positive takeaways from the call including a significant recovery in the GE industrial segments’ cash flows, continued deleveraging of the balance sheet, and stabilisation in major segments such as power and aviation.
Dray also highlighted that the 2019 outlook was the first guidance given by GE since Culp was appointed CEO in October, giving confidence that he is now in a position to deliver on the forecast. Dray maintained his “outperformance,” and raised his price target from $US12 to $US13 – 26% above where shares settled on Thursday.
In contrast, JPMorgan analyst Stephen Tusa maintained his “neutral” rating and $US6 price target. Tusa, who has had a bearish view on GE for several years, is widely followed and his opinions have been known to cause sharp moves in the stock.
“All in, we see little convincing to change our view on the maths here, now seems highly likely that consensus will remain too high on forward numbers … in other words, this looks even more difficult at this stage than former management’s challenges,” Tusa wrote. “Even worse is that if recession hits, stubbornly high leverage would raise the stakes versus back then when it looked like an over-valued stock.”
GE’s stock was up 41% this year.
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