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GE stock soars as big beat in free cash flow and strong outlook overshadows profit miss

Shares of General Electric Co. powered up to an 11-month high Tuesday before paring some gains, as investors cheered a big beat in fourth-quarter free cash flow, while shrugging off a third profit miss in the past four quarters.

The stock GE, +3.43% rose as much as 11.3% in early trading to an intraday high of $12.23, the highest price seen during regular-session hours since Feb. 21. It was recently up 5.7%.

Investors had set a high bar for GE, after the stock’s record one-quarter rally of 73.4% during the fourth-quarter, and yet the company managed to clear it with room to spare.

GE said industrial free cash flow totaled $4.4 billion during the fourth quarter, which compares with guidance previously provided by Chief Executive Larry Culp of “at least $2.5 billion.” Despite FCF weakness in GE’s Aviation business, the big beat was driven by $2.9 billion in FCF delivered by the Healthcare business, and as Power and Renewables continued to improve.

For all of 2020, free cash flow was positive $600 million, compared with the FactSet consensus of negative $1.19 billion. Culp said on the post-earnings conference call with analysts that the positive result for the year came “one year ahead of commitments.”

But perhaps most important for GE investors was the FCF outlook for 2021, which BofA Securities analyst Andrew Obin said ahead of the results could be the “key metric” that determines the stock’s fate. Read more about what was analysts were expecting.

For 2021, GE said it expects FCF of $2.5 billion to $4.5 billion. That was better than the guidance range Obin was expecting, of $1.5 billion to $3.5 billion.

“The fourth quarter marked a strong free cash flow finish to a challenging year, reflecting the results of better operations as well as strong and improving orders in Power and Renewable Energy,” Culp said. “Over the past year, our team proved resilient, and momentum is growing across our businesses.”

Meanwhile, GE reported fourth-quarter net income that rose to $2.44 billion, or $2.27 a share, from $538 million, or 6 cents a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share fell to 8 cents from 20 cents, below the FactSet consensus of 9 cents.

Revenue declined 16% to $21.93 billion, but was above the FactSet consensus of $21.75 billion.

Among GE’s business segments, Aviation revenue fell 35% to $5.85 billion to top the FactSet consensus of $5.66 billion; Power revenue was virtually flat at $5.38 billion, above expectations of $5.18 billion; Healthcare revenue was down 11% to $4.82 billion, beating the FactSet consensus of $4.70 billion; and Renewable Energy revenue slipped 6% to $4.44 billion, just shy of expectations of $4.48 billion.

Regarding GE’s plan to fully monetize its Baker Hughes stake, GE said it is receiving additional proceeds of about $700 million in January. That leaves its stake at 30.1% of Baker Hughes’ shares outstanding, which at current stock prices would be valued at about $6.6 billion.

Don’t miss: GE sold $735 million worth of Baker Hughes stock.

And for GE’s financial position, Chief Financial Officer Carolina Happe said it continues to improve despite the uncertain external environment, as the company ended the year with about $37 billion of total cash. Happe added that GE reduced debt by $16 billion in 2020, and decreased its pension deficit by $2.3 billion.

“Based on current assumptions, we won’t need to make contributions through 2023 to the GE pension plan,” Happe said, according to a FactSet transcript.

GE’s stock has soared 57.4% over the past three months, but has slipped 0.8% over the past 12 months. In comparison, the SPDR Industrial Select Sector exchange-traded fund XLI, -0.29% has gained 5.1% over the past 12 months while the S&P 500 index SPX, -0.06% has advanced 17.2%.

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