What happened
Shares of General Electric (GE 3.22%) raced ahead in early afternoon trading on the New York Stock Exchange (NYSE) Monday. GE stock rose 5.5% through 1:10 p.m. EST after Goldman Sachs announced it is raising its price target on the industrial giant's stock to $15 per share after a GE rival suffered some embarrassing news.
So what
Let's tackle the price-target hike first. This morning, Goldman Sachs reiterated its "buy" rating on GE stock citing a belief that "GE will beat consensus FCF [free cash flow] expectations for 1Q," generating perhaps $200 million in the current quarter. Furthermore, after meeting virtually with GE management to discuss how things are going, Goldman is convinced the company could "land within the top end of the FCF range for 2021," predicting that by year-end, GE will have thrown off $4 billion in total cash profits.
As reported by StreetInsider.com today, Goldman is citing "2020 cash restructuring actions and working capital improvements" as a couple of factors contributing to GE's likely cash success.
Image source: Getty Images.
Now what
And there's a crucial second factor that could also work in GE's favor.
Goldman notes that when GE gave its free cash flow guidance last month, it wasn't sure it could expect to see much improvement in the airline industry in general, or in its aviation business either, and so gave a broad range of $2.5 billion to $4.5 billion for likely FCF this year. In Goldman's view, however, there's a good chance that "travel will snap back in 2H [2021] as vaccines become more widely distributed," helping to push GE's FCF number toward the top of that range.
Now on top of that prediction, we have the news that over the weekend, two separate Boeing airplanes, a 777 flying out of Colorado and a 747 in the Netherlands, each powered by Pratt & Whitney engines from GE rival Raytheon Technologies (RTX 2.06%), suffered engine fires while in flight. Multiple airlines have already reported they are grounding their 777s to inspect the engines.
That's obviously bad news for Raytheon, but logically, it could help GE sell more of its own engines -- a second reason to anticipate greater free cash flow this year and a second reason for investors to like GE stock today.
