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What's Next For GE? Credit Suisse Answers

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In a report published Monday, Credit Suisse analysts maintained an Outperform rating on General Electric Company (NYSE: GE), while raising the price target from $29 to $31, following the company's announcement of selling most of GE Capital's assets over the next 24 months.

In the report, Credit Suisse noted, "The announcement of a dramatic shrinkage (you know it is a big deal when a $6bn cash charge is seen as a minor detail) came sooner than expected; we had thought the EPG conference would be the forum for such news. After the share price jump, the obvious argument to make is that the stock will now go back to sleep for a while; however, we still see upside potential."

The EPS estimates for 2015, 2016 and 2017 have been reduced from $1.71 to $1.29, from $1.66 to $1.46 and from $1.77 to $1.74, respectively. Despite these downward revisions, the earnings CAGR will be "among the highest in the sector," the analysts said.

GE Industrial is likely to generate EBITDA of more than 20bn in 2016. The company could emerge from SIFI status next year, if the GECC divestment program proceeds, which implies scope for increased leverage on the industrial balance sheet.

Taking into account the announced share repurchase of up to $50bn in the new authorization, General Electric could make acquisitions at Aviation, Oil & Gas and Healthcare sectors.

While "major spin-offs" at Industrial are unlikely, there could be small divestments with Lighting as a "logical candidate" and maybe parts of Energy Management.

Although GE has reiterated its Industrial EPS guidance for 2015 at $1.10-1.20, there are several industrial companies that have published weak figures for the March Q. This, along with the challenging environment in Oil & Gas, creates "downside risk to GE's guide at Q2 earnings," the report added.

Latest Ratings for GE

DateFirmActionFromTo
Oct 2016CitigroupMaintainsBuy
Oct 2016Morgan StanleyMaintainsEqual-weight
Jul 2016BernsteinMaintainsMarket Perform

View More Analyst Ratings for GE
View the Latest Analyst Ratings

Posted-In: Credit SuisseAnalyst Color Price Target Reiteration Analyst Ratings

 

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