General Electric (GE) stock is climbing on Monday morning amid news private equity players are preparing bids for the company's jet leasing division, GE Capital Aviation Services.
Shares of the Boston-based industrial giant jumped some 4% in pre-market hours after a report from Bloomberg that private equity powerhouse Apollo Global Management (APO) could be preparing a $40 billion bid for the unit.
The sale of the business would allow the company to deal with its ballooning debt load, a key to maintaining the company's much-protected, although diminished, dividend and preventing a junk credit rating.
"We believe that any sale of GECAS would go a long way towards reducing the FinCo perceived liability risk," Wolfe Research analyst Nigel Coe wrote in his take on the rumored deal. "In our view, the impact on GE stock cannot be solely measured in terms of GECAS book value, but as another step in the balance sheet de-levering story."
He and his team retained their "Outperform" rating for the recently rising stock with a price target of $15 per share, nearly twice its value at the start of 2019.
"We view this as a potential positive catalyst," he concluded.
Such bullish calls have certainly helped shareholders playing laggard stocks as of late, with the stock set to open about $2 above its Dec. 24 level on Monday morning.
The speed of the process, given GE's necessary reset from its over 50% fall in 2018, has also been touted by those trading the stock, as the first half of 2019 is being viewed as crunch time for the company's long-awaited turnaround plan.
"The expediency or urgency with which they do seem to be moving the balance sheet around is very important," Seymour Asset Management CIO Tim Seymour told CNBC over the weekend, expressing his encouragement at the idea of a deal and relief to selling pressure.
To be sure, the takes were not unanimously positive.
Often-correct J.P. Morgan analyst Stephen Tusa was not willing to back off his Wall Street-low $6 price target despite some positive comments about a tangible plan from CEO Larry Culp.
"There is nothing to change our view that $100 billion of net liabilities and zero enterprise free cash flow is the problem facing management and the right construct when thinking about how to get the story back to "normal" from an equity value standpoint," Tusa commented. "We think we are approaching the time where the company will provide something more tangible, perhaps shrinking the balance sheet, but related dilution, combined with a full 'cleanse' of the accounting structure, should result in a substantially lower run rate fundamental anchor than many appreciate, on which our price target remains $6."
He also expressed skepticism on the price tag and the stock's recent pops on vague headlines of potential, not concrete, deals.
"The refrain here reminds us of Bull cases of the past: that the assets are best in class and because management says something will happen, it will happen," Tusa commented.
Tusa retained his "Neutral" rating on the stock, he advised investors wait and see before jumping in on the nascent news.
Based on the pre-market move, the news appears to be enough for yet another stock pop upward, leaving GE with a surprising gain of over 20% in just the last month.
