General Electric (GE) may have bottomed with core businesses poised to recover from the worst of the coronavirus pandemic, Goldman Sachs said. GE stock rose.
Analyst Joe Ritchie resumed coverage of GE stock with a “buy rating” and 10 price target.
Under CEO Larry Culp, GE is “making progress to be a leaner, structurally more productive company with better capital discipline,” he wrote in a note to clients Friday.
Despite pandemic delays in its transformation effort, Ritchie said, “GE will emerge a stronger company.” He expects GE’s free cash flow and balance sheet to improve next year as core businesses recover after a sharp coronavirus hit in 2020.
In a base case, Goldman Sachs assumes a vaccine will be mass distributed over the next 12 months. This should help air travel to recover. So General Electric, with core aviation and health care businesses, could become the “ultimate self-help, vaccine-leverage story in industrials,” Ritchie said.
“Admittedly, we might be a little early on the turn in the stock, but we believe we are at a bottom from both a fundamental and sentiment perspective, and that is typically the best time to own industrial cyclicals,” Ritchie said.
Goldman Sachs suspended coverage on GE stock in early 2019. Before doing so, it had a hold rating and an 8.65 target.
Shares closed up 2.9% at 6.84 on the stock market today, after reaching as high as 7.06 intraday. GE stock is back above the 50-day line after undercutting that support level Tuesday, but remains near decade lows.
The vote of confidence for GE stock come after the company disclosed a Wells notice from the SEC on Tuesday warning of potential civil action for alleged violations of securities laws. GE said it disagreed and will provide a response through the Wells notice process.
The SEC and the Justice Department began probing GE’s accounting in 2018 after the company revealed big write-downs related to a runoff insurance business and its core power business. Under Culp, GE is cooperating with the ongoing investigation as it continues to look for an earnings turnaround.
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