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Behind the incredible GE surge: Analysts relieved no new nasty surprises in report

Key Points
  • GE's fourth quarter results came as a relief to investors with GE shares up as much as 18 percent Wednesday.
  • Wall Street analysts explained GE's massive stock rally following its fourth quarter report.
  • Citi Research's Andrew Kaplowitz said the fourth quarter represents "a step in the right direction toward recognizing the significant value we still see in GE shares."
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General Electric's year-end earnings report brought reassuring news to investors, largely because it contained no nasty surprises this quarter.

And it showed enough cash flow to keep meeting obligations, easing credit concerns.

Wall Street analysts explained GE's massive stock rally following its fourth-quarter report. Analysts were largely positive in their feedback but with some notable caveats. Credit Suisse's John Walsh said CEO Larry Culp has chopped "lots of wood" to try to turn around GE but warned there is "still more to chop" before the company's rebound begins in earnest.

"There should be a relief that the earnings and cash flow cadence this quarter were reasonably close to expectations and certainly did not present any new surprises," RBC Capitals analyst Deane Dray said in a note.

Citi Research's Andrew Kaplowitz said the fourth quarter represents "a step in the right direction toward recognizing the significant value we still see in GE shares." Kaplowitz added that there remain "significant unanswered questions with regards to GE's near- and longer-term potential."

GE shares were up more than 18 percent at one point and are currently on pace for their biggest one-day move in nine years, up 13 percent midday Wednesday.

Here's what major analysts had to say about GE's results:

RBC Capital's Deane Dray – Outperform rating, $10 price target

"Given all of the uncertainty at Outperform-rated GE, there should be a relief that the earnings and cash flow cadence this quarter were reasonably close to expectations and certainly did not present any new surprises. Bear in mind that GE had not provided any earnings guidance for this quarter....Given all of the anxiety over GE's cash generation, this performance should be viewed positively...Other developments this quarter included the $65 million insurance loss recognition, which appears to be much lower than feared. And the DoJ settlement over the legacy subprime mortgage business, WMC, was in-line with the $1.5 billion reserve."

Gordon Haskett's John Inch – Underperform rating, $7 price target

"We believe there had been a market expectation that viewed ~$4b in FCF as a key threshold to satisfy...GE also announced it had settled its FIRREA investigation of WMC for the previously reserved $1.5bn, which we believe the market will view favorably...Overall, we believe that while investors might be encouraged by the >$4bn (adjusted) FCF in the Q, driven by inventory liquidation and Wind progress collections, we caution that GE Capital losses and core Capital cash losses of $1-2bn provide significant offsets. We also reiterate our caution that the sales of BHGE, Transportation and Healthcare will all greatly diminish GE's cash generating capability while outsized on and off-balance sheet liabilities are to remain."

Citi Research's Andrew Kaplowitz – Buy rating, $15 price target

"Given investor concerns relative to GE's cash generation and the potential for liabilities to creep higher, we view 4Q results as a step in the right direction toward recognizing the significant value we still see in GE shares, but still leaving investors with significant unanswered questions with regards to GE's near- and longer-term potential ... At the same time, no commentary or guidance on 2019 or longer-term cash/earnings outlook suggests still limited visibility as GE implements its turn-around plans."

Credit Suisse's John Walsh – Neutral rating, $10 price target

"The quarter is better than expected, especially around FCF and the businesses outside of Power. However, Power 'matters', since it will be a core remaining business following pending portfolio actions...Lots of Wood Chopped, but Still More to Chop: In their release, GE noted several actions to de-lever the balance sheet and strengthen their business. The new item that stands out is having reached an agreement in principle with the US DOJ to settle the FIRREA investigation of WMC for ~$1.5B, consistent with the prior reserve. This is in line with our expectations."

Cowen's Gautam Khanna – Market perform rating, $8 price target

"No [2019] guide yet but [free cash flow] will likely drop – GE did not provide an official F19 FCF/EPS guide, but indicates that 2019 FCF will be below that of 2018's given higher cash restructuring, wind down of PTC advances, planned divestitures, and Alstom challenges. Additionally, mgmt acknowledges that HC is a high cash conversion biz and will be IPO'd in 2019, which by definition, will leave the Remainco with less FCF generation in C20. Mgmt indicates that a formal 2019 guide will come "soon" (we presume circa the 10K filing)."

CFRA's Jim Corridore – Buy rating, $13 price target

"GE is making some progress in generating cash and restructuring operations, though it still has a long way to go. Aviation, healthcare and oil and gas performed very well in Q4 while power continued to struggle. We think GE was smart to separate out renewables, which is seeing particularly strong demand. Q4 adjusted EPS of $0.17 versus $0.27 missed our $0.21 estimate and missed the consensus of $0.22. However, revenues were stronger than we expected and GE has made progress on asset sales, and repositioning of assets. We were pleased to see GE reach a settlement with DOJ on its mortgage lender WMC for what it had already reserved for, as well as by fewer one-time charges. We expect a GE fix to take time, but today's results show some much needed progress."

Barclay's Julian Mitchell – Overweight rating, $12 price target

"Overall, we view the results in positive light as (i) There is no new big shoe dropping at GE Capital - GE announced an agreement in principle with the US DoJ to settle the FIRREA investigation of WMC, at the prior reserve ($1.5bn), and the annual insurance test resulted in a $65m after-tax charge to increase reserves, which was a considerably smaller true-up than many in the investment community had expected; (ii) Industrial results exc-Power and Renewables were solid – the weakness in Power and Renewables should not have been a surprise to investors."

Melius Research's Scott Davis – Positive rating, $21 price target

"There was even a comment from GE's CFO today that there is a plan to get the dividend back on the docket. The fact that we are even talking about a dividend (even out to or past 2021) is a far different statement than just a quarter ago – where bears were climbing all over each other to label GE near bankrupt. And honestly, even we thought that GE might have to raise some expensive capital – like a preferred or something like that. At this point, that seems off the table. The wheels, perhaps, are back on."

– CNBC's Michael Bloom contributed to this report.