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GE cash flow will go out in 2019 – Colorful fool



In 2018 General Electric's adjusted free cash flow dropped by more than $ 1 billion over the year to $ 4.5 billion. This is much less than the original leadership guidance for between $ 6 billion and $ 7 billion free cash flow. In addition, Chief Executive Officer Larry Culp hinted at GE's earnings at the end of January that free cash flow would worsen even more this year.

Earlier this month, Culp shocked investors when he told an investor conference that the free cash flow is likely to turn negative in 2019 On Thursday, GE provided more details on its prospects for 2019 and beyond. Fortunately, the company's cash flow forecast of 201

9 is not as bad as some were afraid of, and GE expects a strong improvement over the next two years. General Electric expects to produce a negative free cash flow of up to $ 2 billion this year, although it provides revenue growth and modest margin expansion on a revised basis.

There are several reasons for this great discrepancy. The biggest contribution to reducing GE's estimated cash flow is the increase in the cost of cash restructuring as the company works in particular to reduce its corporate overhead and energy businesses. GE also expects cash flow in the energy business – burning $ 2.7 billion in cash last year – to fall deeper into negative territory in 2019. Besides restructuring, large cash flows here are overhead for projects that were approved with overly aggressive assumptions and costs that are mainly related to the acquisition [19599003] Alstom Energy Business [19599007] GE gas turbine "src =" https://g.foolcdn.com/image/?url=https%3A GE Power burned $ 2.7 billion last year – and 2% 2019 will be even worse The third major reason for the projected decline in GE's cash flows in 2019 is that the renewable energy segment is expected to move from production to around $ 500 million Free cash flow last year to cash burning in 2019

Management expects a huge improvement in 2020 and 2021

In connection with the presentation of its 2019 prospect, GE's management said the free cash flow should be reinstated -legislative territory next year, of course, some skeptics worry that those forecasts are too optimistic. Let's look at why GE managers are confident in the strong recovery of free cash flow.

First, the cost of cash restructuring will begin to decline in 2020 and will drop significantly in 2021. Secondly, GE will see significant cost savings from those estimates estimate that total administrative costs will fall by at least $ 500 million compared to 2019. Continuous costs in the power plant could be further reduced while GE Power will also benefit from rationalizing production and service footprint. Thirdly, GE will work through most of its "non-operational" counter-winds – such as legal agreements and unprofitable hereditary projects – over the next two years.

In fact, GE believes its electricity and renewable energy segments will produce a positive comparison, they are about to burn $ 4 billion or more on a combined basis this year.

GE sales did not quantify exactly where the free cash flow would end in 2021. However, GE did not quantify exactly where the free cash flow would end in the next two years, but lower interest costs and organic growth in

it is likely to exceed the $ 4.5 billion $ 20 billion level in 2018 with a lot of growth potential for years to come after GE Power is recovering even further and GE Aviation continues its hot growth

GE stocks have a ton top

Investors welcomed GE's forecasts, sending GE shares to almost 3% to $ 10.30 on Thursday. Still, it was below the highest value of shares a few weeks ago after GE announced a $ 21 billion deal to sell its biopharmaceutical business to Danaher which would allow the company to quickly cut debt yours. And this is almost 70% below the multi-year high GE stockpiles reached less than three years ago

 GE Chart

Presentation of General Electric shares. Data from YCharts.

If GE can achieve 2021 goals and achieve further improvement then, the free cash flow could reach $ 1 per share by 2022 or 2023. This would potentially justify GE's share price to $ 20.

will not yet erase all the losses of investors in the past two years. However, this is an impossible cost. After the 10-year bull market there are not many stocks with a good chance of doubling over the next three to four years. In this way, GE's stocks can deliver household profits to investors going forward.


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