GE Feeling The Positive Effects Of More Profitable Growth, Better Culture And Lower Risk

Year to date, General Electric Company GE has underperformed the S&P by more than 10 percent; according to Bernstein’s Steven E. Winoker, some of the rise was “catchup following a rapid rise in the prior year and post-election pro-cyclical mean reversion trade.”

Winoker upgraded the rating on the company to Outperform, while raising the price target to $40.

The Positives

Looking ahead, the analyst mentioned earnings growth continued to be consistent, while General Electric’s portfolio has changed for the better and concerns regarding the risk for restructuring of Alstom in Europe have been mitigated.

“Moreover, industrial profit growth and cash flow conversion now look set to improve markedly by low-teens and10 points respectively on Power/Aviation/Healthcare strength, incremental cost out actions plus working capital management,” Winoker noted.

The analyst also believes there is “a new set of catalysts in the form of potential tax reform, regulatory relief and other factors that should lift GE's businesses beyond 2018.”

Some Concerns

In addition, the company’s compensation incentives are also aligned, and Winoker expressed a constructive stance of digitization and automation, although a greater impact would take time to become apparent.

Near-term concerns regarding General Electric, the analyst stated, relate to FX headwinds, O&G, Topic 606 accounting, mix impact with engines scaling and execution.