Please ensure Javascript is enabled for purposes of website accessibility

Why General Electric Stock Just Popped

By Rich Smith - Feb 22, 2021 at 1:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Goldman upgrade combines with bad news for Raytheon to boost GE shares.

What happened

Shares of General Electric (GE -3.32%) 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 today, Goldman is citing "2020 cash restructuring actions and working capital improvements" as a couple of factors contributing to GE's likely cash success.

Hand draws rising stock chart in red colored pencil.

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 -0.51%), 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.  

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
$63.69 (-3.32%) $-2.19
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
$93.30 (-0.51%) $0.48

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.