“First-quarter cash flow will set an important tone,” Gordon Haskett analyst John Inch tells Barron’s. Inch is bearish on GE stock with a $7 price target. GE burned through $1.7 billion in the first quarter of 2018. Inch worries that weak cash-flow guidance could derail the bullish case that GE cash flows will dramatically improve in 2020.
“We know first-quarter cash flow is going to be worse [than 2018],” RBCCapital Markets analyst Deane Dray counters when speaking to Barron’s. Dray is modeling a $4 billion cash burn for the first three months of this year. “That number may be unsettling,” Dray adds. But as long as GE doesn’t change its full-year cash-flow guidance range from negative $2 billion to zero, GE stock should survive the first-quarter earnings report.
Dray also believes GE isn’t done selling assets, but with the health-care division’s initial public offering on hold, that unit will likely stay with the company for all of 2019. “That also means GE keeps the health-care cash this year, which isn’t a bad thing,” adds Dray.
GE Power was restructured shortly after Culp arrived, and the company recently wrote off $22 billion in goodwill associated with that division. It’s possible GE could sell the steam-turbine portion of its power business. Those are the assets acquired when GE bought Alstom in 2015. If that happens it is yet another signal that Culp isn’t a prisoner to GE’s past.
Looking ahead to the report, Barron’s wonders if investors are really ready for a big cash burn. The headline figure could be disquieting for investors, but GE stock should still rise and fall with the market’s confidence in Culp.
What does it all mean?