CEO Larry Culp told investors at a conference on Wednesday that free cash flow would be positive in the second half of 2020. That was a small comment. But it was new and enough to shake up the stock.
The event was the annual Morgan Stanley Laguna Beach conference held on the West Coast. This year’s event is virtual because of the Covid-19 pandemic.
the industrial business burned about $ 3 billion in the first half of 2020. Improved cash flow in the second half will mean year-round free cash flow is likely to be better than Wall Street expects.
Analysts expect a year-round burn of about $ 2 billion, which means a $ 1 billion positive free cash flow in the back half of the year. Investors seem to think Culp’s comments mean that $ 1 billion in positive free cash flow is a change.
– To him [second-quarter] profit call, the company [said] a consistent improvement in profits and cash is achievable in the second half of 2020, ”Gordon Haskett analyst John Inch said in a research note on Wednesday. “Culp stated more emphatically that the company will give positive results [free cash flow] in the second half. “Inch stock prices hold and there is a target price of $ 5 per share.
Shares of GE rose 10.8% to $ 6.76 on Wednesday.
When 2020 began, GE’s management expected to generate between $ 2 billion and $ 4 billion in industrial free cash flow, but that was before the pandemic.
A pandemic punished GE shares. Shares have fallen about 41% year-on-year, worse than the comparable return on
Dow Jones Industrial Average.
(AIR.France) fell by 48% and 56% respectively. Aviation space stocks To Barron songs decrease by an average of about 33%. Shares of US airlines fell by approximately 40%.
The aerospace industry has been hit harder by most sectors of the economy since the pandemic. US commercial air traffic fell by more than 90% year-on-year in April and the recovery is slow. One analyst called the current environment aeromagedon.
Entering the pandemic, GE’s largest and most valuable business unit was commercial aviation. GE also has an aircraft leasing unit. Aircraft are of great importance to General Electric.
Cash too. Cash flow has been the focus of investors for some time. GE is still in a reversal mode led by Culp after previous management teams accumulated debt through ill-fated acquisitions.
The balance sheet is in better shape after large sales of assets. But money will remain king.
Write to Al Root at email@example.com