Narrow-moat rated General Electric (GE) meaningfully outperformed our expectations for industrial free cash flow, although revenue and adjusted EPS, when excluding the restructuring recast, was relatively in line with our assumptions. GE’s fourth quarter guardrail guide called for “at least $2.5 billion of industrial free cash flow.” During the fourth quarter GE turned in $4.4 billion of industrial free cash flow relative to our meaningfully-above FactSet consensus assumption of $3.2 billion. Revenue for the fourth quarter came in at $21.9 billion versus our expectations of $22.1 billion. Rolling this all up, when excluding the restructuring recast, GE’s full-year adjusted EPS came in at $0.06 versus our expectations of $0.07. Looking forward, GE’s 2021 industrial free cash flow guide calls for $2.5 billion to $4.5 billion of industrial free cash flow, which is meaningfully above our prior expectations of $1.9 billion for 2021. As a result, we are raising our fair value estimate to $11.80 from $11.10. The primary justification for the raise is pulling cash forward in our forecast, as our long-term free cash flow targets remain largely intact, along with a positive 20 cent fair value contribution due to the time value of money. That said, we did moderate our earnings assumptions heading into 2021. While it’s likely our fair value may appreciably rise after reviewing GE’s 10-K filing and including another year of cash flows in our model, we await GE’s outlook meeting on March 10 before we publish a revised model.
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