First, the stock built upon the positive set of third-quarter earnings released at the end of October. The key takeaways from the earnings report are that GE's full-year free cash flow (FCF) performance would be better than most had feared earlier in the year. In addition, there was hard evidence of an improvement in the two segments, power and renewable energy, that CEO Larry Culp is restructuring for growth. If Culp does manage to improve margin at those two businesses then they could provide some very useful FCF support to GE in the future.
The second positive catalyst came from the news on coronavirus vaccines. Simply put, GE is likely to be a big winner from a vaccine. Not only will its key aviation segment receive a boost from a recovery in air travel, but its healthcare segment will also benefit from an improvement in non-COVID-19 procedures. Furthermore, the power segment should improve as site access improves.
With GE performing better than expected with its turnarounds at power and renewable energy, and healthcare continuing to perform solidly, it appears that Culp is improving the company's execution. Meanwhile, its aviation end markets will improve if a vaccine accelerates the natural progression toward herd immunity from COVID-19.
With this in mind it's not surprising that the market started to price in more optimistic scenarios for GE's earnings and FCF in the coming years. You could make the case that Culp is likely to oversee an improvement in all of GE's segments next year and the company's FCF performance is set for a dramatic improvement.
Investors will want to keep a keen eye on margin progression in power and renewable energy, while healthcare's sales growth will hopefully improve in 2021 as well. Aviation is somewhat of a wildcard, but 2021 is likely to be a better year than 2020. All of this makes GE one of the most interesting industrial stocks for the coming year. The company will see better days ahead.