General Electric Company GE yesterday provided an update on its free cash flow expectations. It also discussed the impacts of the pandemic on its operations and measures to deal with the difficulties.
It is worth noting here that General Electric’s share price decreased 5.1% yesterday, eventually closing the trading session at $7.61.
Inside the Headlines
As mentioned frequently, General Electric finds workers’ safety, the continuation of providing services to customers, and preserving the business strength to be its priorities during this difficult period. Also, it is working on lowering debts — having reduced $4.9 billion of GE Capital debt and $8 billion of GE Industrial debt year to date — and maintaining a healthy liquidity position. By the end of second-quarter 2020, the company predicts lowering commercial papers and debts of GE Industrial by $1.8 billion.
The conglomerate has implemented several cash and cost-related measures — including lowering discretionary spending, improvement in working capital, workforce reduction and cuts in capital expenditure — to deal with the pandemic-led risks. Notably, it intends on preserving $3 billion in cash and lower costs in excess of $2 billion, going forward. Roughly 80% of the benefits are likely to be realized in the second half of 2020.
For 2021, the conglomerate anticipates generating positive free cash flow — backed by recoveries, which it is witnessing across its businesses, and cash ad cost-related measures — and high-single-digit margin. It believes that rise in aircraft departures in China and increase in freight are healthy signs for its GECAS and Aviation operations. Also, the demand for military products is likely to aid Aviation, while a recovery in the commercial business is contingent on resumption in air travel.
Further, it expects the demand for pharmaceutical diagnostics products and others to revive in the near future and thus, aid Healthcare operations. For Renewable Energy, efforts to strengthen onshore and offshore wind businesses, cost actions, and recovering in hydro and grid businesses will likely be beneficial.
Also, delay in projects due to the pandemic poses a threat to Gas Power, while measures to reduce costs and preserve cash will be beneficial. Gas Power expects to lower fixed costs from $3.1 billion in 2019 to $2.5 billion in 2021. Free cash flow will likely be positive for Gas Power in 2021, with margin being in high-single digits.
The company reiterated negative free cash flow expectations for 2020. The metric in the second quarter is likely to be ($3.5)-($4.5) billion.
Zacks Rank, Price Performance, Estimate Trend and Competitors
General Electric currently has a market capitalization of $70.2 billion and a Zacks Rank #3 (Hold). It is poised to benefit from cost-reduction actions, portfolio-restructuring moves, healthy liquidity and efforts to lower debts. However, forex woes and adverse impacts of the pandemic are concerning.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s share price has increased 5.2% in the past three months compared with 18.1% growth recorded by the industry.
In the past 60 days, its earnings estimates for 2020 and 2021 have been revised. Currently, the Zacks Consensus Estimate for General Electric’s earnings is pegged at 4 cents for 2020 and 36 cents for 2021, reflecting declines of 90% and 42.9% from the respective 60-day-ago figures.
General Electric Company Price and Consensus
General Electric Company price-consensus-chart | General Electric Company Quote
Three competitors in the industry namely ITT Inc. ITT, 3M Company MMM and Honeywell International Inc. HON have recorded gains of 39.4%, 22.7% and 14.3%, respectively, in the past three months.
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