While the gyrations of so-called meme stocks have taken the spotlight, less trendy General Electric has been outperforming the market on bets a corporate turnaround and broader economic recovery will boost the manufacturing giant.
GE shares are up around 25% so far in 2021, compared with a less than 1% advance for the benchmark S&P 500, and have gained about 150% since their May low. They were down 0.1% on Friday at $13.55.
Driving the gains are investor expectations that the worst may be over for the conglomerate. GE saw its stock pummeled in recent years due to a host of setbacks, among them misplaced bets on fossil fuels-related businesses and the widespread economic damage wrought by the pandemic.
An investor conference scheduled for March 10 appears to have heightened interest in the stock in recent days. Morgan Stanley raised its price target on the company this week by $4 to $17 per share. UBS also raised its target.
“The company has been through a lot but it’s getting its sea legs,” said William Blair analyst Nicholas Heymann.
GE’s turnaround, which was interrupted by the coronavirus-induced recession that hit the company’s aviation business particularly hard, appeared to be “back on track and likely to be quicker than expected prior to the pandemic,” Heymann said.
Since taking the reins in 2018, Chief Executive Larry Culp has been focusing on lean-manufacturing practices aimed at eliminating waste and continuous improvement. Heymann cited a boost from rising interest rates due to GE’s pension plan deficit as well as plans for greener products as key drivers of the company’s recovery.
Jason Adams, portfolio manager for the T. Rowe Price global industrials fund, cautioned that the company’s turnaround will likely take time. Even GE CEO Culp has referred to the company’s revamp as a “game of inches.”
“This is not a 2021 story,” Adams said. “This is really about the transformation that GE is undergoing under Larry Culp’s leadership and where earnings and free cash flow can get to in the 2022-2025 time horizon.”
T. Rowe Price owned some 7.8% of GE’s shares outstanding at the end of 2020 and was the biggest single owner of the stock according to the latest publicly available information.
Morgan Stanley said it expects a multi-year path to above consensus free-cash flow of around $0.90 per share in 2023.
UBS on Wednesday raised its price target to $15 from $14, suggesting that rising rates and the COVID-relief bill could be material positives for GE’s pension liability.