Analyst Updates 2020 GE Healthcare Projections Following Investor Day Event

General Electric Company GE held a GE Healthcare investor day event this week. One analyst in attendance said Tuesday that Healthcare should be a stable source of free cash flow for GE as it executes its turnaround strategy, but the GE bull case still hinges on Power.

The Analyst

Bank of America analyst Andrew Obin reiterated his Neutral rating and $12 price target for GE stock.

The Thesis

Obin listed three major takeaways from the event for investors:

• Not including Biopharma, GE Healthcare should generate between $1.6 billion and $1.8 billion in free cash flow in 2020.
• GE’s digital offerings have grown large enough to potentially help expand Healthcare margins.
• There were no major surprises in GE’s Healthcare guidance of mid single-digit revenue growth and between 0.25% and 0.75% of margin expansion per year.

Including Biopharma, Obin projects $2.9 billion in 2020 free cash flow from GE Healthcare, down from $3 billion in 2018. He said Healthcare should be able to grow free cash flow in the high single digits starting in 2021.

“On balance, GE’s Power segment has more opportunity to drive either the Bull or Bear case,” Obin wrote in a note.

GE’s digital revenue is growing in the high single digits at margins of greater than 50%. Obin said the key risk to this growth is the potential for new competitor willing to sacrifice profits to gain market share.

Benzinga’s Take

The worst may finally be over for GE investors after years of market declines. However, GE will need to demonstrate it can generate sustainable cash flow and earnings growth to make the stock appealing to value investors.

GE's stock traded around $11 per share at time of publication.

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