Size of words
CEO Larry Kulp told investors at a conference on Wednesday that free cash flow would be positive in the second half of 2020. This was a short comment. But it was new and it was enough to shock the stock.
The event was Morgan Stanley’s annual Laguna Beach conference held on the West Coast. This year’s event is virtual due to the Kovid-19 epidemic.
In the first half of 2020, industrial trade burned down by about $ 3 billion. Better cash flow in the second half would mean that free cash flow would be better throughout the year than Wall Street.
Analysts expect more than half of the year to mean $ 1 billion in positive free cash flow, which would be a full-year 2020 cash burn of about $ 2 billion. Investors think Culp’s comments mean that $ 1 billion in positive free cash flow is a layoff.
“on that [second-quarter] Earnings call, company [said] A gradual improvement in income and cash is achievable in the second half of 2020, ”Gordon Husscht analyst John Inch said in a Wednesday research note. “Culp more definitely indicated that the company would deliver positively [free cash flow] In the latter half. “Inch rates hold shares and aim for $ 5 for the stock.
GE stock rose 10.8% to $ 6.76 on Wednesday.
When 2020 began, GE management expected to generate between $ 2 billion to $ 4 billion in industrial free cash flow, but this was before the epidemic.
And the epidemic has punished GE shares. The stock is down for about 41% year, worse than comparable returns
Dow Jones Industrial Average.
(AIR.France) are down 48% and 56% respectively. Aerospace supplier stock Baron’s The tracks are down about 33% on average. US airline shares are down nearly 40%.
The epidemic has made aerospace harder than most sectors of the economy. US commercial air traffic fell more than 90% year-over-year in April, and recovery has slowed. One analyst called the current atmosphere aero-midadeone.
Coming into the epidemic, GE’s largest and most valuable, commercial unit was commercial aviation. GE also has an aircraft leasing unit. Plans for General Electric mean a lot.
So does cash. Cash flow has been the focus of investors for some time. GE is still in turnaround mode, led by Culp, with former management teams piling on debt through poor acquisitions.
The balance sheet is in better shape after the sale of large assets. But cash will remain king.
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