Why This General Electric Analyst Still Cut His Price Target Following Big Earnings Beat

General Electric Company GE shares are up sharply in the past week after the company reported much better-than-expected second-quarter earnings numbers.

However, despite a bullish outlook for the stock, one Wall Street analyst cut his price target and free cash flow forecast for GE on Monday.

The Analyst: Bank of America analyst Andrew Obin reiterated his Buy rating for GE but cut his price target from $120 to $105.

The Thesis: In his new note, Obin reduced his 2022 FCF forecast for GE from $5.9 billion to $5.2 billion and his 2023 FCF forecast from $7.3 billion to $6.6 billion. He projects 5% organic revenue growth and 8.4% operating margin this year. Looking ahead, he is projecting 8% revenue growth and 11% margins in 2023.

While he reduced his FCF forecasts, Obin also said investors seem to be gaining more confidence in GE's cash flow outlook.

"We continue to see GE shares as having a sizeable valuation discount from our sum-of-the-parts analysis," he said.

Obin said GE's renewables segment has been the big disappointment of the year up to this point. He expects the segment will generate a $1.6 billion loss for the year. Fortunately, with Congress recently moving forward with efforts to restore U.S. wind production tax credits, Obin said 2022 will likely mark a trough for GE Renewables FCF and operating losses.

In addition to FCF strength, Bank of America projects GE will grow its adjusted EPS by 75% in 2023 to $4.90.

Benzinga's Take: GE appears to have stopped the bleeding by aggressively addressing its liquidity and balance sheet issues and has enacted a long-term turnaround plan that includes breaking the company into three different public companies. The stock is down 27.8% in 2022, but it's trading at just 15.2 times Obin's 2023 earnings estimate.
Turbine Image courtesy of GE.com

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