General Electric Co. ( GE) stock has lagged the Standard & Poor’s 500 index for more than a decade. But after years of frustration, GE investors may now be on the cusp of an extended period of outperformance.
According to William Blair analyst Nicholas Heymann, GE’s share price is currently a “coiled spring.” GE stock could soon make a major push higher to relieve that tension.
Heymann says GE’s forecasted margin expansion and the long-term growth potential of GE Digital are not yet priced into the stock.
GE Digital is the new software segment of GE’s business created in 2015. GE Digital will compete with rivals such as International Business Machines ( IBM) in the nascent Internet of Things market and is well-positioned to benefit from President Donald Trump’s proposed federal infrastructure spending.
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“Key external catalysts only represent potential upside to GE’s and consensus expectations,” Heymann says. “GE’s transformational GE Digital business continues to gain fundamental traction, allowing GE’s 2018 Predix data analytics contribution of $200 million to appear very conservative.”
Heymann says GE’s merger-spinoff deal with oil services giant Baker Hughes ( BHI) and its $10 billion buyout of Alstom Energy were shrewd long-term business ideas and well-timed deals. The Baker Hughes deal positions GE to capitalize on the early stages of a recovery in the U.S. oil and gas industry within two years.
Finally, after such an extended period of underperformance, market expectations for GE are extremely low. Heymann says investors are skeptical GE can meet its organic sales growth guidance for 2017. That skepticism limits the potential downside for GE stock in the near-term if the company fails to deliver.
“Despite concerns over the pace of revenue growth acceleration, GE remains our top 2017 large-capitalization diversified industrial pick to outperform,” Heymann says.
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In addition to the company’s fundamental strength, GE management recently committed to another $1 billion in cost-cutting by 2018, and GE stock currently pays a generous 3.2 percent dividend yield.
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Analyst: GE Stock May Be Poised to Climb originally appeared on usnews.com
