In a big note — I’m talking 108 pages! — on the electrical equipment group today, JP Morgan-Chase analyst Stephen Tusa raised price targets on a slew of stocks, including up’ing his price on General Electric (GE) from $20 to $22, which he rates “Overweight.”
GE shares today closed up 5%, or 80 cents, or $16.25.
He also raised his targets on Ingersoll Rand (IR), Lennox International (LII), Rockwell Automation (ROK), infrastructure manufacturer SPX (SPW), Textron (TXT), Watsco (WSO), and Wesco (WCC), all of which he rates “Overweight” as well.
Despite the uptick in target price, Tusa’s generally reluctant to endorse the group, despite rising enthusiasm for industrials given the uncertain shape of global economic recovery. (See yesterday’s comparatively bullish note by Goldman Sachs.) Sales are set to decline on an “organic” base for the industry by about 2% this year, he writes, while mix and pricing of goods could make things worse. And a “double-dip” recession can’t be ruled out.
Nevertheless, he writes that General Electric is JPM’s top pick, but not for the industrials side, rather for the GE Capital Services business, which may very well have significant earnings leverage. First, the delayed fall-off in “provisioning,” which will abate the first half of this year, will become less of a drag on GE Cap’s earnings. Second, the business will face less competition for leasing and financing this year as competitors such as Textron bow out.
As for GE’s industrial business, well, it’s really mid- to late-cycle of an economic recovery, so it will not fare much better than a 3% decline in revenues this year, writes Tusa.
Morgan Stanley analysts also had bullish things to say about GE, emphasizing that property values have bottomed, which should be a relief for GE Cap’s exposure to commercial real estate.
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