Oppenheimer Drops Bearish GE Thesis On Improving Balance Sheet Outlook

General Electric Company GE stock got a boost this week after the company updated investors on its long-term plan and announced it would be divesting its health care business. GE’s outlook certainly improved, but one analyst said it’s still to early to buy the stock.

The Analyst

Oppenheimer analyst Christopher Glynn upgraded GE from Underperform to Perform.

The Thesis

GE’s divestitures will at least reduce the company’s liabilities and at best unlock some value by improving GE’s messy balance sheet, Glynn said in the upgrade note.

 GE is targeting net debt of $25 billion by 2020, roughly half of the $50 billion it reported at the end of 2018 and the $60 billion it reported at the end of 2017, the analyst said. 

Glynn projects GE's free cash flow to be about $6.3 billion in 2018, roughly in-line with company guidance. Yet that cash flow drops to $2.4 billion once Baker Hughes A GE Co BHGE and GE Healthcare are out of the mix. Glynn estimates the market cap of the remaining GE company one the divestitures are complete will be around $50 billion.

Price Action

“We remain watchful for O&G recovery, and prospects that core FCF growth can offset planned divestitures, to allow clearer visibility to scaling FCF,” the analyst said. 

Given that GE's planned restructuring carries tremendous execution risk, Glynn is not yet recommending investors buy the stock. 

GE shares were up 1.6 percent at the time of publication Wednesday at $13.96. 

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