After a dismal 2018, many are wondering if a baseline has come in on General Electric (GE) .
Shares kicked off Thursday's trading firmly in the positive, as many market minds appear to embrace CEO Larry Culp's call of 2019 as a "reset year" for the 126-year-old company, charting a true turnaround in 2020 and 2021.
"Our priorities remain the same to improve our financial position and to strengthen our businesses. First, we are making our balance sheet healthier. We are measuring our progress through our stated leverage targets at both GE Industrial and GE Capital and expect to make significant progress against those targets by the end of 2020," Culp explained during an investor outlook call Thursday morning.
He added that belt tightening thus far is in the pursuit of making the company less reliant on short term funding and allowing the business to operate on a healthier cash balance.
"We expect significant improvement in Industrial free cash flows in 2020 that will take us positive for that year," Culp noted, expanding on the grim February forecast for industrial cash flow in 2019 that hit the stock. "GE Capital net income [will reach] breakeven by 2021 and significantly lower Corporate costs by 2021. All of our actions come back to our two main priorities and in pursuit to those we are making long-term decisions, design to reduce downside risk and increase upside optionality."
He added that these priorities will allow the company to focus more firmly on improving key businesses, such as GE Power, a segment that Culp said he spends the majority of his time on.
"Power is in a serious turnaround mode," he explained.
Culp explained that a turnaround is "not going to be quick by any stretch" but noted that he believes GE has identified the root causes for years of disappointing results from the business and is working to rectify them.
"What I want to emphasize is that we know how we got here" Melius Research analyst Scott Davis said, driving home the understanding.
Analysts at large were encouraged by the comments, noting that the baseline for a bull case may indeed have set in.
"GE has line-of sight on a sequential improvement in industrial FCF to net positive in 2020 and further acceleration in 2021," RBC Capital Markets analyst Deane Dray said Thursday morning. "This is the biggest positive disclosure, in our view, given that our position has been that GE is a 2020/2021 industrial FCF recovery story and should not be valued on its 2019 trough."
He added that he was encouraged by the disclosures on deleveraging given by the typically opaque company.
Dray noted that the $38 billion in proceeds expected from the exits of BioPharma, Baker Hughes (BHGE) , and Wabtec through 2020 should do a good deal in cleaning up the company's balance sheet and keep credit ratings agencies at bay.
"GE remains a battleground stock, but we believe that having Mr. Culp draw the line in the sand today with his targets and vision for the turnaround should bolster the bull case," Dray concluded.
He set a $12 price target for the stock, slating some remaining opportunity for investors.
Not all GE watchers were so sanguine.
"I think that the bad news is more secular," Action Alerts PLUS portfolio co-manager Jim Cramer said, pinpointing Power as a persisting problem for the company. "When do you go from having your arms around it to being able to really do something about it?"
He concluded that GE Power is a "bad business" and that the Culp is setting his sights too high for the segment that will really need to be buoyed by the Aerospace enterprise.
For more of Cramer's thoughts on oil services, aerospace, and how to find out when a stock has truly bottomed, tune into his Action Alerts PLUS members call at 11:30 a.m. ET.
