Why This General Electric Analyst Is Targeting $6.5B In Free Cash Flow In 2022

General Electric Company (NYSE: GE) failed to wow the market when it reported third-quarter earnings numbers, but one analyst said Monday that he's  optimistic that the industrial giant’s free cash flow recovery will really start to gain steam in 2022.

The GE Analyst: Bank of America analyst Andrew Obin reiterated a Buy rating on GE with a  $128 price target. 

Related Link: Is General Electric's Stock Overvalued Or Undervalued?

The GE Takeaways: In his new note, Obin updated his free cash flow forecasts for 2021 and 2022 based on the latest earnings numbers from GE. Obin is calling for $4.75 billion in 2021 FCF and $6.5 billion in 2022 FCF. Obin also cut his 2022 EPS estimate from $4.05 to $3.93.

Obin is now projecting 2022 net income of $4.36 billion for GE, still below its 2019 level of $5.82 billion but more than double 2021 totals.

“Net-net, we see the broader commercial aerospace recovery as providing operational ‘cushion’ and Renewable headwinds (US Wind Production Tax Credit dynamics, raw material inflation) a key source of operational risk,” Obin said.

To hit his $6.5-billion 2022 FCF target, Obin said GE will need to continue to reduce working capital even as revenue grows. Bank of America is projecting revenue growth will swing to positive 7.2% in 2022 after four straight years of declines.

Obin says GE's Aviation unit will lead the revenue growth turnaround in 2022 by growing 20% from 2021 levels. He says consistent FCF improvements should unlock value for GE investors over the medium term.

GE Price Action: GE shares were trading 1.76% higher at $106.72 Monday afternoon. 

Benzinga's Take: GE appears to have stopped the bleeding by aggressively addressing its liquidity and balance sheet issues and has enacted a long-term turnaround plan. Yet GE is already trading at 18.5 times Obin's 2023 earnings even if the company hits his growth targets over the next two years.