General Electric's Fundamentals Glass Viewed As Less Than Half Full

Operational Execution — The Key

"Exceptional operational execution will remain critical across all GE's operations throughout 2017 to achieve its 100-basis-point improvement in operating margins, its continued improvement in cash flow from operations, and a significant increase in the pace of its organic sales growth," the firm noted.

Skeptical Investors

Analyst Nicholas Heymann believes the stock's current malaise reflects doubts regarding the company's 2018 earnings per share target. Heymann noted that the company's stock has become a coiled spring. Even as skepticism regarding achieving 2017 and 2018 earnings per share targets has held the stock in check thus far in 2017, the analyst thinks the continued improvement in macro environment would help.

The focus of the company, according to the analyst, is on dynamically enhancing the performance of its new portfolio, rather than on transforming its portfolio.

William Blair noted that demand for General Electric's infrastructure products, service and data analytics is tangible in all regions of the global economy.

Guidance For 2017

William Blair also referred to the company's solid guidance for 2017, coming after three successive quarters of weak organic sales and free cash flow.

• Organic sales growth: 3–5 percent vs. 1 percent in 2016.
• Operating margin improvement: 100 basis points vs. 40 points in 2016.
• Cash flow from operations: $14 billion to $16 billion vs. $11.6 billion in 2016.
• Free cash flow: $10 billion to $11 billion vs. $8.7 billion in 2016.

This would enable achieve adjusted earnings per share of $1.60–$1.70, the analyst added.

Key Catalysts

• U.S. corporate structural tax reform .
• U.S. privately financed infrastructure modernization.
• GE's transformational GE Digital business continues to gain fundamental traction.

"We believe the pervasive skepticism restraining GE's share performance currently really has only one way to evolve: more constructively if as we expect GE executes on its targeted objectives," the firm said.

Maintaining EPS Estimates, Rating

As such, William Blair said it is maintaining its 2017 and 2018 earnings per share estimates for the company at $1.65 and $2, respectively.

The firm maintains its Outperform rating on the shares of General Electric, stating that the company remains its top large-cap diversified industrial pick to outperform throughout 2017.

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