By: Scott Davis
GE: The Free Cash Flow Story in Pictures
Folks – lots of information out there on GE cash flow. Wanted to weigh-in on the debate. We see a GE with lots of levers to pull on costs/cash. The company missed its cash target by a boatload this year and net free cash before dividend is forecasted anywhere from ($1B – $4B) this year on CFOA of $7B. Obviously not gonna cut it with a dividend of $8B. Most folks now think dividend gets cut ~25% – that seems to be what stock is discounting. In either event, we see net free cash bottoming out in 2017, relatively flat in 2018, then a big ramp in 2019-2020 up to a $15B-ish level. Main drivers include cost-out, w/c improvements, Predix cuts, Global Research Center cuts, operating improvements at Baker Hughes and GE Power, and return of cash dividend from GE Capital. We see no structural reason why GE can’t earn $1.50-ish EPS with cash about $1.45. If Flannery can’t get there, then he should break this thing up asap.
GE Report Here