Credit Suisse’s Julian Mitchell and team attended General Electric’s (GE) digital investor meeting, and reiterated an Outperform and $34 price target on the stock Friday.
They write that it’s been “clear for some time” that GE looks like it could be far better positioned than most electrical equipment and multi-industry companies in terms of taking advantage of the emergence of IT in the industrial world, thanks to its financials, the complex nature of its products and its willingness to invest in its own business. The meetings just reinforced their bullish view:
We came away from today’s event re-assured that GE seems to be taking advantage of this potential, and aside from the revenue opportunity (Digital can not only increase the company’s topline, but also lower its sales cyclicality in market downturns, as evidenced currently in Transportation for instance) there is also a considerable productivity dividend to be reaped in the coming years. Services / AM profits have grown at a 7% CAGR at GE since 2011, but Digital could drive this higher in future (note that the $2+ in EPS by 2018 requires a 5% total profit CAGR). On a broader note, the CFO reminded us that 2016 will be a very 2H-loaded year for orders, sales and earnings for GE, and confidence was expressed in the Alstom synergy targets. In terms of the stock, we removed GE from our Focus List last November, but think the recent sell-side downgrades and muted YTD share price performance are starting to render it more attractive for the 2H16.
GE is down 2.6% to $30.30 in recent trading. Phases & Cycles was bullish on GE earlier this week.