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Barclays upgrades General Electric to buy on new CEO turnaround, shares climb

The market is of the view that newly minted boss Larry Culp is likely to speed up restructuring in keeping with broader strategic options

A board sporting the General Electric logo
General Electric, a prolific dealmaker throughout its 126-year history, began the biggest reorganization ever under ousted CEO John Flannery

Shares in General Electric Co (NYSE:GE) shot up after Barclays upgraded General Electric to overweight from equal weight on Monday, saying the new CEO Larry Culp will lead a turnaround and most of the possible bad news is already priced into the stock.

CNBC reported that Baclays analyst Julian Mitchell’s 12-month price target remains at $16, which represents a 21% jump from Friday's close of $13.18. But Mitchell also laid out a "blue sky" scenario that takes the stock to more than $20 a share if Culp can aggressively improve profitability.

"We think the upside potential in the shares is considerable now that an outside CEO has been put in place, which substantially increases the range of possibilities that could be pursued at GE, in terms of both the pace of restructuring as well as broader strategic options," wrote analyst Julian Mitchell.

READ: General Electric shares spring after 2Q earnings beat Street on better than expected revenue

Before GE CEO John Flannery was ousted last week, he had announced at least 17 divestitures and spinoffs worth more than $13 billion, according to data compiled by Bloomberg.

Several transactions were still on the table when he was pushed out, and while Culp has yet to lay out his strategy, the news agency reported that the purpose of the CEO swap was to speed up Flannery’s plan, not to change directions.

Investors have already priced in a dramatic reduction in earnings guidance and 75 percent cut in the dividend by GE, so the bottom may be in, according to Barclays.

"Even the most hardened skeptic might want to re-consider following the CEO change," wrote analyst Julian Mitchell. "While we do not yet know the magnitude of the 2018 guidance cuts, talking to investors we believe they are broadly braced for EPS of $0.75 for 2018, FCF (free cash flow) of $0.50, and a dividend cut of 75 percent plus."

GE shares added 2.39% in New York to $13.52.

Quick facts: General Electric

Price: 6.69 USD

NYSE:GE
Market: NYSE
Market Cap: $58.52 billion
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