When activist billionaire Nelson Peltz jumped aboard the General Electric (GE) bandwagon last October with a $2.5 billion investment from his fund, Trian Partners, investors flocked to his bullish thesis of a share-price reversal.
GE was then at the peak of its industrial overhaul, only months after CEO Jeff Immelt announced his plans to unwind the manufacturer's longtime lending arm, GE Capital, a division analysts had grown to consider unpredictable, and a central driver for GE's messy entanglement in the 2008 financial crisis.
Trian's report on GE -- entitled "Transformation Underway ... But Nobody Cares" -- predicted that GE would finally catch up with outperforming peers Honeywell (HON) and 3M (MMM), and would trade at about $40 to $45 per share by the end of 2017.
It seems a far cry from where shares trade today, but Monday's announcement that GE closed its sale of $16 billion online deposits to Goldman Sachs (GS) -- the latest of Immelt's string of megadeals -- could go a long way. And the news will undoubtedly help GE scrap its onerous Federal Reserve label as a Systemically Important Financial Institution, or SIFI, an instrumental step in the process.
"With this sale, we are now in a position to fully exit the U.S. banking system by extinguishing our final U.S. bank charter and terminating our FDIC insurance, which we are targeting to complete by the end of this week," GE Capital CEO Keith Sherin said in a Monday statement.
But as shares trade at about $31 with earnings around the corner, many wonder if GE -- an investment held in Jim Cramer's Action Alerts PLUS charitable trust -- can still hit the nearly 50% share price expansion that is required of Trian's high-end estimate.
"The announcement ¿ which finalizes GE's exit from the U.S. banking system ¿ increases the already-high likelihood that the company sheds its SIFI designation," Action Alerts PLUS co-manager Jack Mohr said in a Monday email. "More broadly, the news emboldens our bullish thesis, which is predicated on our belief that the stock has room for the further multiple expansion as the company's industrial earnings rise and capital assets are shed -- two developments that are happening in an environment where industrial comps trade at a higher multiple relative to banks."
Nick Heymann, a senior analyst at William Blair, is also among those who continue to believe GE is trading at a steep discount. In fact, shares could rise as high as $38 this year, Heymann said in a Friday email to Real Money, which underscored that the market continues to underestimate GE's potential to return cash to shareholders from its industrial overhaul.
Part of the reason, according to Heymann, is GE will likely hit the brakes on its recent buying spree, which included its biggest-ever acquisition in the purchase of French turbine-maker Alstom's (ALSMY) grid businesses for $10.3 billion last fall.
This is largely because the manufacturer is "heavily incentivized" to return much of its free cash flow -- from asset sales and operations -- to shareholders, especially as "everyone knows the stock is not reflecting the true underlying potential," Heymann added. (GE sold $157 billion in financial assets last year alone, in its quest to scrap its SIFI label.)
And with earnings set to be released Friday, many on Wall Street share Heymann's bullish view that GE can meet Peltz's expectations, which include GE returning $100 billion in capital to investors through the end of 2018.
Morgan Stanley, which maintains a $37 high-end price target for GE over the next 12 months, said GE could unveil a more substantial buyback initiative on its Friday call with analysts, which could help offset a somewhat dismal start to 2016.
"Upside surprises could come from a stronger start on the buyback (we look for $4 billion-$5 billion during 1Q) and a modest upsizing on Capital dividends given the accelerated disposal," an analyst group led by Nigel Coe said in a report last week.
In all, the average 12-month price target for GE is $34, with 69% of the manufacturer's listed analysts maintaining Buy ratings, and 31% with Holds, based on Bloomberg consensus data.