GE Has Dramatic Profits Powered by Free Cash Flow

General Electric

is finally gaining momentum. The iconic company posted better-than-expected earnings in the past week, with little drama. GE surpassed estimates and raised its full-year free cash flow guidance for industrial operations to a midpoint of approximately $4.3 billion, $800 million from the previous guidance. The stock was up 2% weekly at $12.95 and 20% this year. The

S&P 500

index increases by 17% for 2021.

Larry Culp was hired in late 2018 to turn over a then floundering GE. Industrial free cash flow generated between 2018 and 2020 was $1.7 billion, down from a rough average of $12 billion in 2015 to 2016. During the pandemic, cash flow fell to about $600 million. “[Free cash flow] has been the fixation for investors ever since [Culp] took over, and for obvious reasons… It was terrible,” wrote Melius analyst Scott Davis. He called the new directive a ‘remarkable and critically positive’. RBC’s Deane Dray said in a note: “GE’s ‘North Star’ continues to improve [cash flow].” He rates GE stock as a buy, with a price target of $16.

Another bull, William Blair’s Nicholas Heymann, praised GE’s “steady sequential improvement in virtually all businesses and key metrics.” He sees 30% upside potential for the stock and considers it a buy, but has not published a price target. However, a 30% gain would bring it around $17.

Not everyone is so cheerful; Wall Street’s average goal is $14.68.

Oppenheimer‘s

Christopher Glynn assesses the stock as a Hold, even without a price target. Still, he sees positive changes at GE. And it’s suddenly hard to find bears on General Electric. About 67% of analysts are buying their shares, versus the average buy ratio for S&P 500 stocks of 55%. Nobody says sell.

Next week

Monday 8/2

CNA Financial,

worldwide payments,

JELD-WEN Holding,

Loews,

Arista Networks,

Leggett & Platt,

Vornado Realty Trust,

ZoomInfo Technologies, Woodward,

Take-Two interactive software,

Heineken, Trex, Ferrari,

Ultra clean companies,

and

Simon Property Group

are expected to announce financial results.

The Supply Institute Management publishes its Manufacturing Purchasing Managers’ Index for July. Consensus estimate is for a reading of 60.8, up from 60.6 in June.

The Census Bureau reports construction spending for June. A monthly increase of 0.4% is expected, after a decline of 0.3% in May.

Tuesday 8/3

Eaton, BP,

under armor,

lift,

Clorox,

Amgen,

Akamai Technologies,

Cumin,

Eli Lilly,

Alibaba Group Holding,

Nikola, EnPro Industries,

Warner Music Group,

Pitney Bowes,

tennant,

Philips 66,

KKR,

Gartner,

Henry Schein,

Dun & Bradstreet Holdings,

Conoco

Philips, and

Jacobs Engineering Group

hold conference calls to discuss financial results.

The Census Bureau is scheduled to report factory orders for June. Economists predict orders were up 1.0% during the month, compared to a 1.7% increase in May.

Wednesday 8/4

Sony Group,

CVS health,

Kraft Heinz, SoftBank,

General engines,

Progressive,

Etsy,

electronic art,

Western Digital,

Uber technologies,

year,

MGM Resorts International,

Fox and Re/Max Holdings are expected to host earnings talks.

The Office of Economic Analysis reports light vehicle sales for July. Expectations call for a seasonally adjusted annual rate of 15.3 million vehicles, up from 15.4 million in June.

The ISM releases its Services PMI for July. The consensus estimate is for a reading of 60.8, compared to June’s 60.1.

ADP releases its National Employment Report for July. The consensus estimate is for a 635,000 gain in nonfarm private sector employment, after rising from 692,000 in June.

Thursday 8/5

Zillow Group,

More than meat,

Yelp,

Wayfair, Kellogg,

Bayer,

Hanes Brands, Moderna,

Regeneron Pharmaceuticals,

Switch,

Cushman & Wakefield,

ViacomCBS,

Cigna,

Duke Energy,

Square,

News Corp,

and

Siemens

expects to be able to report financial results.

Friday 8/6

The BLS releases the jobs reportfor July. Economists predict an 800,000 increase in nonfarm payrolls, after an 850,000 increase in June. The unemployment rate is expected to fall from 5.9% to 5.8%.

DraftKings,

Dominion Energy,

gannett,

MGM growth properties,

AMC networks,

Canopy Growth,

tripadvisor,

Spectrum Brands Holdings,

EW Scripps,

Cinemark Holdings and Manitowoc hold conference calls to discuss financial results.

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

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