Morgan Stanley is now the biggest General Electric bull on Wall Street after analyst Josh Pokrzywinski raised his target on the stock to $17 on Thursday, up from his prior forecast of $13.
Shares of GE briefly topped $14 per share after the markets opened Thursday, setting a new 52-week high before paring gains and trading up about 1%. The stock is up about 25% since Jan. 1.
Pokrzywinski noted that there’s “a lot of room to grow in Aviation,” which is typically the company’s most profitable business. That unit has dragged down the Boston-based conglomerate during the pandemic as global travel came to a standstill, hammering demand for GE-manufactured jet engines.
GE CEO Larry Culp said last month at a Barclays Industrial Conference that he expects a “pronounced” recovery this year in aviation.
Rising demand for repairs
Notably, GE Aviation makes the bulk of its profit from repairing, not selling, its engines through long-term maintenance contracts.
The analyst predicted that demand for GE repairs to jet engines could return to 2019 levels in 2023. He added that he’s optimistic that these repairs have been “delayed rather than deferred and support continued growth beyond 2023.”
Culp and other GE executives are scheduled to update investors on the company’s 2021 outlook next week.
Pokrzywinski said he sees the event as a “catalyst” that could set the company up for a “multi-year path to above consensus” free cash flow, which is closely watched by investors as a sign of the company’s operational and ability to pay down debt.
Burning cash in the first quarter
Last month, Culp told an audience at the Barclays event that the company expects to burn cash in the first quarter of 2021.
But he noted cash generation will still be higher than a year prior, when the company burned $2.2 billion. The first quarter of the year is historically GE’s softest, and Culp noted that the anticipated cash outflow is “nothing more than what we see typically at the start of a new year.”
GE reported in January that it generated industrial free cash flow of $4.4 billion in the fourth quarter, which sent the stock soaring briefly.
Culp projected the company would generate $2.5 billion to $4.5 billion in industrial free cash flow for 2021.
Shares of GE have continued to rise steadily since its strong third-quarter earnings report in October, when the company posted a surprise profit.
The stock has climbed on positive vaccine news and optimism that Culp is creating growth in the conglomerate’s industrial sectors, including power and renewable energy.