HomeTrading NewsGE Picks Up New Buy Rating. Don’t Wait for the Spinoffs.

GE Picks Up New Buy Rating. Don’t Wait for the Spinoffs.

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The new GE Buy rating comes from Bernstein analyst Brendan Luecke.
Patrick Hertzog/AFP via Getty Images

General Electric stock has picked up a new Buy rating from Wall Street. That has GE shares moving up in early Tuesday trading.

GE stock (ticker: GE) is up about 1% in recent trading, at $100.40. The S&P 500 and Dow Jones Industrial Average are down about 0.6% and 0.7%, respectively.

The new Buy rating comes from Bernstein analyst Brendan Luecke, who launched coverage of several industrial companies Monday evening. General Electric is one of his favorites.

“We join GE for the last stretch of the great unwinding,” wrote Luecke in a report published Monday evening. GE has been in turnaround mode ever since CEO Larry Culp took over in 2018. The company has paid back more than $80 billion in debt since then. Now it is planning to split into three companies—one dedicated to aerospace, another to healthcare, and a third to power generation.

The healthcare spinoff is slated for 2023. The spinoff of the power business is planned for 2024.

Luecke views the spinoffs as bullish and sees more cost reductions leading to better-than-expected profits before they occur. He projects GE will earn about $5.74 a share in 2023 and $7.19 a share in 2024. The Wall Street consensus for those two years is $5.63 and $6.53, respectively, according to FactSet. That drives Luecke’s $120 price target, up roughly 20% from recent trading levels.

With the new Buy rating, about 71% of analysts rate GE shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for GE stock is about $120 a share, in line with Luecke’s target.

Along with GE, Luecke is recommending Danaher (DHR) and Rockwell Automation (ROK) shares. He believes Danaher’s healthcare franchise will continue to perform well as Covid winds down, and he argues that demand for Rockwell’s automation solutions will continue to grow.

Those two companies trade at premium valuation multiples—at about 29 and 27 times estimated 2023 earnings, respectively. GE stock trades at about 18 times estimated 2023 earnings. The S&P 500 trades at about 19 times estimated 2023 earnings.

Despite the higher-than-average valuation multiple, about 83% of analysts covering Danaher rate shares Buy. The average analyst price target for Danaher stock is about $346. Luecke’s price target is $365. Danaher stock is at about $302 in Tuesday trading.

Luecke’s call on Rockwell looks out of consensus. Only about 40% of analysts covering Rockwell stock rate shares Buy. High valuation might have something to do with analyst sentiment. The average analyst price target is about $342 a share, only about 5% above where the stock is trading. Luecke’s target is $378.

Write to Al Root at allen.root@dowjones.com

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