Skip to Content
Stock Analyst Update

We're Impressed With GE's Free Cash Flow

CEO Larry Culp is effectively leading the firm through a multiyear turnaround.

Mentioned:

GE (GE) performed slightly ahead of our expectations for free cash flow year to date. The strong cash performance prompted management to raise the range of its industrial free cash flow guidance from negative $1 billion to $1 billion up to $0 to $2 billion. We are impressed by this performance, and we think it’s yet another data point that supports our long-term thesis on the stock: GE has valuable assets that serve vital portions of global industry, and CEO Larry Culp will lead that firm through a multi-year turnaround. Despite little short-cycle exposure relative to other industrials, except for Healthcare, GE accomplished this feat against a difficult macroeconomic backdrop and considerable 737 Max headwinds in its most valuable business in GE Aviation (most of the earning power of the company rests in this segment). As a result, we don’t expect to materially alter our fair value estimate, though we note there could be some slight upward pressure due to time value of money.

Bears will no doubt point out one of three items: 1) the raised free cash flow guidance comes off reduced industrial restructuring of about $200 million; 2) orders are down 1% organically year over year; and 3) Aviation benefits from some cash allowance buildups, and once they reverse the emperor will be missing “its wardrobe.” We disagree with these points of contention. Yes, restructuring is down, but ultimately one must ask why is restructuring down. In our view, restructuring spend is lower given greater-than-expected fundamental performance (and less about timing). Despite continued difficulty in the gas power transactional services book, the underlying gas power appears to finally be stabilizing along with the overall business. GE is also making better-than-expected progress on its supply chain finance transition, which we think will provide greater clarity around the 2021 free cash flow debate.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.