General Electric Analyst Weighs In On CEO Larry Culp's Latest Guidance

General Electric Company GE CEO Larry Culp spoke at the Bernstein Strategic Decisions Conference on Friday. On Monday, Bank of America analyst Andrew Obin discussed several investor takeaways from Culp’s presentation.

Culp expressed confidence that GE’s Aviation segment will recover in the second half of 2021. However, he also tempered expectations for both revenue and margins in the second quarter.

Related Link: Why This GE Analyst Is Raising Their Earnings, Cash Flow Forecasts

Culp said investors can expect additional charges from GE’s annual review of long-term services agreements in the second quarter. He said these reviews will result in a “step down” in margins compared to the first quarter.

Long-Term Outlook: In addition, Culp said GE is on a path to high-single-digit free cash flow margins by 2023 and a return to revenue in the $85 to $90 billion range. That revenue would include about $10 billion in the industrial segment operating profit, Culp said.

Obin estimates GE’s 2023 guidance suggests 11.4% operating margins, a 1.9% increase from pre-pandemic levels in 2019. It also implies about $7 billion in FCF and an 8% FCF margin. Obin said FCF remains the most important metric for valuing GE shares.

“Over the medium term, improving FCF should support share price appreciation,” he said.

Bank of America has a Buy rating and a $15 price target for GE.

Culp also said the U.S. Justice Department has completed its review of GE’s recent sale of its GE Capital Aviation Services to AerCap Holdings N.V. AER, and he expects the deal to close by late 2021 or early 2022.

Obin said Culp is also optimistic about GE’s Renewables margins as the company begins shipping its Haliade-X turbines.

Benzinga’s Take: If FCF is the most important metric for GE, the company is on the right track based on Bank of America’s projections. After reporting a negative $2.94 billion in FCF in 2020, Obin is forecasting a positive FCF of $4.3 billion in 2021.

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