The first quarter is usually weak for General Electric.
Sebastien Bozon/AFP via Getty ImagesOne sign that winter is losing its grip on Wall Street is that CEOs migrate from calls about their fourth-quarter earnings to broker-hosted investing conferences, where they weigh in on the outlook for the coming year.
General Electric (ticker: GE) CEO Larry Culp, charged with leading a turnaround at one of the world’s largest industrial companies, has been on the circuit with a couple of appearances in the past few days. He began with a Tuesday talk to Barclays clients.
Cash flow was a big topic of conversation, as it usually is for GE investors. One nugget of news was that first-quarter cash flow for the company will likely be negative. That isn’t a surprise, though. The first quarter is a seasonally weak one for the company.
And Culp added he is confident GE’s aviation division, its largest business unit, can return to 2019 levels of free cash flow. That good news is partly the result of cost cutting, partly because of new products, and, of course, partly due to the economy recovering from the pandemic..
“The comments on [free cash flow] and demand trending as expected should be well received by investors,” wrote Barclay’s analyst Julian Mitchell in a Tuesday research report summarizing the talk for his clients. “We expect to hear more on this and on [profit] margin targets at the investor event in March.”
GE hosts an outlook event for investors March 10. Mitchell rates GE stock at Buy and has a $13 price target.
Wednesday, Culp spoke at the Citi industrials virtual conference. Free cash flow was a big topic again, but this time, the CEO addressed how GE can generate more cash. Rather than making big acquisitions, he wants to expand GE’s businesses organically.
GE did make a healthcare acquisition recently, but big deals aren’t in the offing. “We’ll do some bolt-ons when we can, where it makes sense,” said Culp, referring to smaller deals. That, like Culp’s Tuesday comments on free cash flow, was consistent with what investors expect.
Cash flow will be the key metric for GE investors to watch in 2021. The average projection among analysts is that the total will be about $3.7 billion, but estimates range from about $2.6 billion to $4.6 billion.
Bank of America analyst Andrew Obin‘s call is for about $4 billion in 2021 free cash flow. “We see a margin of safety for GE’s 2021 Industrial [free cash flow] guidance,” wrote Obin in a recent research report. He believes some of the things that hurt 2020 free cash flow are going away as the company reduces its debt and makes less use of receivables factoring, the practice of selling accounts receivable at a discount to generate cash.
GE has predicted roughly $3.5 in free cash flow for 2021. Obin rates GE shares at Buy and has a target of $14 for the stock price The shares fell 0.9% to $11.86 on Wednesday.
GE stock is up about 10% year to date, better than the 5% gain of the S&P 500 and the 3% rise in the Dow Jones Industrial Average.
Write to Al Root at allen.root@dowjones.com
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February 18, 2021 at 05:32AM
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GE CEO Larry Culp Is Talking About 2021. Cash Flow Is the Key. - Barron's
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