Analyst Raises General Electric Target Following FCF Deep Dive

General Electric Company (NYSE: GE) shares traded slightly higher on Monday after one Wall Street analyst performed a deep dive into the company’s free cash flow outlook.

The GE Analyst: Bank of America analyst Andrew Obin reiterated his Buy rating for GE and raised his price target from $13 to $14.

See also: Buy Bank of America Stock

The GE Thesis: Last week, GE shares jumped after the company reported a better-than-expected $4.37 billion in fourth-quarter industrial free cash flow and guided for between $2.5 billion and $4.5 billion in industrial FCF in 2021.

On Monday, Obin said GE’s 3% year-over-year drop in orders in the fourth quarter was also a pleasant surprise given orders dropped 28% in the previous quarter.

The $3.5 billion midpoint of GE’s 2021 industrial FCF guidance was also slightly above Bank of America’s target of $3.3 billion.

Obin said investors don’t seem to fully appreciate GE’s multi-year effort to reduce factoring, which was a $3.2 billion outflow in 2020. That process is now coming to an end and Obin said investors can expect working capital levels to begin to normalize.

Related Link: $1,000, 5 Years Later: How Much Would General Electric Stock Be Worth?

Obin understands the caution toward GE given the uncertain economic outlook and the company’s rough recent track record, but he believes the company is being overly cautious with its 2021 Aviation revenue guidance.

In the meantime, Obin says GE has plenty of financial flexibility in the near-term, and could actually benefit from rising interest rates. Rising rates would help reduce GE’s $25.5 billion in pension liabilities and GE Capital’s $21.3 billion in long-term care liabilities.

“Higher discount rates would lower the value of these long-lived liabilities,” Obin said.

Benzinga’s Take: GE appears to have stopped the bleeding by aggressively addressing its liquidity and balance sheet issues, and it has implemented a long-term turnaround plan. However, Obin is forecasting just 62 cents in 2023 earnings per share, suggesting GE is already trading at 17.2 times 2023 earnings even if the company hits Obins growth targets over the next two years.

Photo credit: Momoneymoproblemz, via Wikimedia Commons