CEO Larry Culp told investors on Wednesday at a conference that free cash flow will be positive in the second half of 2020. That was a small comment. But it was new and it was enough to give the stock a boost.
The event was Morgan Stanley’s annual conference at Laguna Beach on the West Coast. This year’s event is virtual due to the Covid-19 pandemic.
Industrial activity burned about $ 3 billion in the first half of 2020. Improving cash flow in the second half of the year would mean full-year free cash flow would likely be better than Wall Street expects.
Analysts expect cash consumption of around $ 2 billion for the year 2020, or $ 1 billion of positive free cash flow in the second half of the year. Investors seem to think Culp’s comments mean $ 1 billion in positive free cash flow is a hoax.
“On his [second-quarter] call for results, the company [said] A sequential improvement in earnings and liquidity in the second half of 2020 is achievable, ”Gordon Haskett analyst John Inch said in a research note Wednesday. “Culp has indicated more definitively that the company will deliver positive results [free cash flow] in the second half. ”Stock at Inches Hold and has a target price of $ 5 for the stock.
GE stock rose 10.8% to $ 6.76 on Wednesday.
By early 2020, GE management expected to generate between $ 2 billion and $ 4 billion in industrial free cash flow, but that was before the pandemic.
And the pandemic has punished GE’s actions. The stock is down about 41% year-to-date, worse than comparable returns from the
Dow Jones Industrial Average.
(AIR.France) are down 48% and 56%, respectively. Aerospace supplier inventories Barron’s leads are down about 33% on average. Shares of US airlines are down about 40%.
Aerospace has been hit harder than most sectors of the economy by the pandemic. US commercial air traffic fell more than 90% year over year in April, and the recovery was slow. One analyst called the current environment aero-mageddon.
As the pandemic entered, GE’s most important and valuable business unit was commercial aviation. GE also has an aircraft rental unit. Planes are very important to General Electric.
The same goes for cash. Cash flow has been a central concern of investors for a long time. GE is still in recovery mode, led by Culp, after previous management teams took on debt over unfortunate acquisitions.
The balance sheet is in better shape after major asset sales. But money will remain king.
Write to Al Root at [email protected]