Last week's Brexit referendum has weighed on global markets across the board, sending bargain hunters out to look for corporate stocks that may now be trading at a discount.
And General Electric's (GE) relatively small business exposure to the U.K. and European Union puts shares of the manufacturer in good shape to climb about 30% over the next 12 months, William Blair analyst Nick Heyman said in a Monday report.
"While the Brexit vote last week is likely to prove disruptive to Europe's economy near term, we do not view it as a serious handicap for GE," he said. "The United Kingdom accounts for a low-single-digit share, while Europe accounts for about one-seventh of GE's total sales." (General Electric is a stock held in Jim Cramer's Action Alerts PLUS charitable trust.)
As Real Money reported, only 1.5% of GE's $108.8 billion expected sales this year appear to be imperiled by the departure of the U.K. from the bloc, with 15% of sales tied to Europe, based on a stress test compiled by Stifel. Meanwhile, GE rivals United Technologies (UTX) and Honeywell (HON) are at risk to see about 2.7% and 2.2% of their 2016 revenue evaporate respectively over the period due to Brexit.
GE shares have fallen roughly 6% since last week's U.K referendum as of afternoon trading Monday, roughly in line with the average of the Dow Jones industrials and broader S&P 500.
William Blair, which maintains a Outperform rating on GE, also says the second half of 2016 will be a crucial opportunity for GE CEO Jeff Immelt to accomplish his year-long plan of unwinding GE Capital through nearly $200 billion of financial divestitures -- freeing GE to finally scrap its onerous Systemically Important Financial Institution label, which is determined by the Federal Reserve.
"We continue to sense that GE's share price is now set to enter its next phase of market outperformance based on a better understanding of and stronger earnings contribution from GE Digital, as well as accelerating sales and earnings growth during the second half of 2016," Heymann added, noting that GE's so-called Industrial Internet is an ideal source of profits at cheap margins for GE.
GE's Industrial Internet is based on the manufacturer's proprietary Predix cloud-based software, which rolled out last fall, and is well poised to help GE's digital businesses reach $15 billion in annual revenues by 2020, the company said at an investor conference last week. (GE's Predix platform connects industrial sensors to algorithms that optimize performance on machines as varied as wind farms, jet engines and locomotives.)
"GE believes the world desperately needs to sharply improve global industrial productivity," Heymann added. "It believes GE Digital's Predix and the Industrial Internet can help achieve this goal." Worldwide industrial productivity expanded from 1991 to 2010 at a constant annual rate of 4% CAGR, which has decelerated to 1% from 2011 to 2015, according to William Blair research.
William Blair expects GE's digital operations to add $0.03 to $0.04 to earnings per share in 2016 and up to $0.07 per share by 2020.