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Why A COVID-19 Vaccine Makes General Electric's Stock 'More Investable'

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Why A COVID-19 Vaccine Makes General Electric's Stock 'More Investable'

General Electric (NYSE: GE) shares have been on fire since the company’s third-quarter earnings beat in late October, but one analyst said Friday that positive coronavirus vaccine news from Pfizer Inc. (NYSE: PFE) makes the GE bull case even better heading into 2021.

The GE Analyst: Bank of America analyst Andrew Obin reiterated his Buy rating and $11 price target for GE.

The GE Thesis: Obin said the potential for a return to normalcy in 2021 thanks to a coronavirus vaccine makes GE shares “more investable.”

Obin has raised his 2020 adjusted EPS estimate for GE from a 22-cent loss to a 2-cent profit. He has also raised his 2021 EPS estimate from 29 cents to 34 cents.

“The path to a return to mid-single digit FCF margin (as a % of revenue) by 2022 looks more credible,” Obis wrote in a note.

He’s now forecasting positive $4.7 billion in 2022 free cash flow, up from a $2.1 billion FCF loss in 2020.

Related Link: General Electric Jumps On Earnings Beat, FCF Guidance 'Well Ahead Of Buy-Side Expectations'

GE reported that its Power and Renewable segments have already returned to profitability as of the third quarter. At the same time, Obin said losses in the GE Capital segment are contained. In addition, GE has reserved $100 million for ongoing SEC investigations into its insurance business, problems Obin says the company already addressed via a $9.5 billion chargeback in 2017.

Obin said the potential for a coronavirus vaccine that's widely available by the second half of 2021 combined with GE’s recent operational improvements and medium-term FCF growth outlook make GE stock a buy, even after its recent rally.

Benzinga’s Take: GE investors are likely growing tired of hearing about how a turnaround is just around the corner after years of underperformance and lackluster cash flow and earnings numbers, and the stock remains a show-me story at this point. However, a coronavirus vaccine would go a long way in eliminating the biggest headwind to GE’s turnaround story.

Photo credit: Momoneymoproblemz, via Wikimedia Commons

Latest Ratings for GE

DateFirmActionFromTo
Dec 2020DZ BankUpgradesSellHold
Dec 2020Morgan StanleyMaintainsOverweight
Dec 2020B of A SecuritiesMaintainsBuy

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