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General Electric Co GE

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

GE Knocks the Cover Off the Ball With Its Latest Fourth Quarter Free Cash Flow Results

Joshua Aguilar Equity Analyst

Analyst Note

| Joshua Aguilar |

Narrow-moat rated General Electric 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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Company Profile

Business Description

GE was formed through the combination of two companies in 1892, including one with historical ties to American inventor Thomas Edison. Today, GE is a global leader in air travel, precision health, and in the energy transition. The company is known for its differentiated technology and its massive industrial installed base of equipment sprawled throughout the world. That installed base most notably includes aerospace engines, gas and steam turbines, onshore and offshore wind turbines, as well as medical diagnostic and mobile equipment. GE earns most of its profits on the service revenue of that equipment, which is generally higher-margin. The company is led by former Danaher alum Larry Culp who is leading a multi-year turnaround of the storied conglomerate based on Lean principles.

Contact
5 Necco Street
Boston, MA, 02210
T +1 617 443-3000
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 174,000

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