GE stock rallies after a difficult week as bullish analysts defend an airline lease deal

General Electric stock rose more than 5% on Monday as bullish analysts defended the company’s decision last week to sell its jet rental business to compete with AerCap and new financial management .

On Wednesday, the Boston-based conglomerate announced the sale of GE Capital Aviation Services, or Gecas, the largest remaining asset of GE Capital’s one-colossal financial arm, to AerCap. GE holds a 46% stake in the company collectively and the deal will generate approximately $ 24 billion in cash. As soon as the deal closes in nine to 12 months, GE plans to transfer debt and remaining assets of GE Capital to the company’s business balance sheet.

To GE, the deal will be moved further away from GE Capital, which is close to going bankrupt after the 2008 financial collapse, so it can focus on the core business of the fusion, a focus for CEO Larry Culp.

Following the announcement of the deal, the stock fell from over $ 14 per share to a short dip below $ 12 a share in after-hours trading on Thursday. Analysts attributed the sale to a combination of profit-taking and concerns about the potential for wrapping GE Capital with debt into the business balance sheet for the company’s debt profile.

But on Monday, bullish analysts from UBS, Goldman Sachs and Bank of America came to the company’s defense, dismissing Gecas ’contract eligibility and GE’s financial position.

In a note to clients Monday, Joe Ritchie of Goldman Sachs reiterated its company’s buying rate with a $ 15 price target on GE stock. He said Gecas’ contract moves GE closer to realizing its potential as the “ultimate self-help, vaccine-based story in Industrials.”

Ritchie allayed concerns that Gecas ’contract and the decision to put the rest of GE Capital into the business balance sheet will increase the company’s net deficit to a volatile level.

Famous Steve Tusa, Steve Tusa, raised concerns about it last week, saying that the company has “high sustainable levers … as well as fundamentals that we would present as a mix with expected employment at the time a future that is still too high. “

And S&P Global said it may reduce the company’s credit rating after the deal closes, adding that it estimates GE’s leverage will rise to around 6 times that of assets when it consolidates its remaining debt. at GE Capital on its balance sheet, “even with GE using the money at closing to reduce debt.”

But Ritchie said it is not fair to compare the expected 2021 business balance sheet that carries GE Capital to the previous year. According to his estimates, Ritchie said that the net leverage of GE 2020, including GE Capital, was more than 10 times that of assets, so six hours of funding would still be an improvement.

Andrew Obin of Bank of America, which has a $ 15 buy rating on the stock, also came to the company’s defense in a note to clients Monday. Obin noted that some investors may have sold the news that the company could take a one-time cost of $ 5 billion to reduce the use of something called a factor, or sell accounts available to a department. another to maintain the income earlier. The company said it would scale that practice back in 2021 to help simplify accounting.

More bearish analysts identified the $ 5 billion cost as a slowdown in the company’s direction of free cash flow of between $ 2.5 billion and $ 4.5 billion for the year.

“Simpler GE comes at a cost, but expect a blow and pick up results from here,” Obin said of the charge.

And UBS’s Markus Mittermaier told clients Monday that GE Capital’s consolidation into the business balance sheet is a “long-term advance.” He noted that some funds from GE Capital will also move into the business balance sheet and that the company has sufficient cash flexibility to handle their debt burden.

“Last week’s move largely ends GE Capital and will greatly simplify not only reporting but also the ability for regulators to focus on GE ‘ doing things “again,” he said. He said it “creates a strategic choice in the business portfolio from eliminating parental company debt and commitments associated with those debts.”