GE stock starting to look like a phoenix that may ’emerge from the flames’

AP Images / Richard Drew

• General Electric shares jumped Monday after Barclays said the stock could have more upside amid its restructuring plans under new CEO Larry Culp.
• “Even the most hardened skeptic might want to re-consider following the CEO change,” Barclays said.
• Follow GE shares trade here in real time.

General Electric shares jumped more than 3% Monday after Barclays said the stock could have more upside amid its restructuring plans under new CEO Larry Culp.

In a note titled “Phoenix may start to emerge from the flames,” Barclays analyst Julian Mitchell wrote, “Even the most hardened skeptic might want to re-consider following the CEO change”.  He upgraded GE to “overweight” while maintaining his price target of $16 a share. He says a “Blue Sky” scenario —one in which Culp aggressively turns around the company — would cause the stock climb over $20.

“We think the upside potential in the shares is considerable now that an outside CEO has been put in place, which substantially increases the range of possibilities that could be pursued at GE, in terms of both the pace of the restructuring as well as broader strategic options,” he said in a note to clients on Monday.

Mitchell expects the company to revamp its struggling power business with major cost reductions, improve its cash flow, and potentially issue equity if there appears “a genuine risk that a substantial part of the $40bn in net credit lines have to be tapped.”

GE’s stock has surged nearly 7% since last week after the company announced it had ousted CEO John Flannery and replaced him with Culp.

Last week, the credit rating agency Moody’s said it placed General Electric and its subsidiary GE Capital Global Holdings “on review for downgrade” after the company had warned that it would miss its 2018 earnings guidance of $1 to $1.07 a share. 

“While we do not yet know the magnitude of the 2018 guidance cuts, talking to investors we believe they are broadly braced for EPS of ~$0.75 for 2018, FCF of ~$0.50, and a dividend cut of 75%+,” Mitchell said.

GE’s stock had fallen more than 25% this year.

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