Morgan Stanley: GE's Core Strengths Offset By 'Opaque Potential Cash Needs'

A busy week for General Electric Co GE continued on Thursday when yet another analyst weighed in on the beaten-down industrial giant.

The Analyst

Morgan Stanley analyst Joshua Pokrzywinski initiated coverage of GE with an Equal-Weight rating and $10 price target.

The Thesis

Pokrzywinski said GE remains a high-risk/high-return proposition for investors.

“The issue, in our view, is that a reasonable valuation and strength in the Aviation platform are offset by opaque potential cash needs in Long-Term Care (LTC) and the long-term market and share potential in Power as competition evolves,” Pokrzywinski wrote in a note.

He said long-term GE bulls looking at least two years down the road should consider two primary issues. First, most of the negative sentiment toward GE is focused on problems outside of its core business. Second, GE will only establish a “new normal” of performance once a number of near-term negative catalysts are resolved, many of which are outside of management’s control. Pokrzywinski said those catalysts include LTC reserve testing, increasing Power competition and a weak market backdrop.

The good news for GE bulls is that Pokrzywinski said his Equal-Weight rating is not a reflection of the chances of a bearish outcome as much as it is a reflection of his view that GE’s problems will not be resolved anytime soon.

Morgan Stanley’s comments come one day after Citi analyst Andrew Kaplowitz said investors may be underestimating GE’s opportunity for “improving results in 2020 and beyond.”

Benzinga’s Take

At some point, GE will need to demonstrate that its aggressive asset sales and business transformation will translate to long-term earnings and cash flow growth. That transition doesn’t appear to be coming anytime soon, so investors can afford to be patient for the time being.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Citi: General Electric's Recovery 'Could Be More Significant' Than Investors Realize

Analyst: Regulatory Response To GE Allegations Is Reassuring For Investors

Photo credit: Momoneymoproblemz, via Wikimedia Commons