The game of leapfrog upgrades by the Wall Street Cassandras is on. After yesterday's upgrade by JP Morgan, based on the premise for a comfortably numb investor who will gladly throw his money into the upgrade napalm pit, predicted a $17 stock price for GE, Goldman, as expected, outdid itself and raised its own target from $15 to $18. Keep in mind, this is coming from the same analyst who used remarks by Barney Frank to justify a move from Neutral to a Buy a month ago. At this point the clutching at straws is becoming funnier than a Lewis Black on 10 red bulls and 3 eight balls stand up routine. If only Goldman's analysts were as funny, or were permitted to use the same colorful language that their clients use when describing the tactics out of 85 Broad. However, the language they do use is entertaining nonetheless, and with phrases such as "as the economic recovery blossoms" one has to have a keen sense for sarcasm and tongue in cheek humor to appreciate the full insight of the Goldman report.
From the report:
GE Capital risk appears manageable while Industrial continues to modestly outperform and valuation risk premium should wane as the economic recovery blossoms. We reiterate our Buy rating on GE shares and are encouraged by resilient performance of the company’s Industrial portfolio in the downturn driven by strong aftermarket/ services as well as higher preprovision GECS earnings in 2Q and credit losses that are tracking in line with expectations. There does not appear to be legislative support for regulatory reform that would require a dilutive separation of GE Industrial and GE Capital and GECS funding is complete for 2009 and nearly so for 2010. Moderating US consumer credit losses are also positive. While uncertainties remain, including reserve adequacy, commercial real estate losses, and longer-term capital requirements, we believe sentiment is overly negative and expect investor focus to shift to the upside potential in a normalized environment as the economy and credit markets continue to recover.
GE Industrial performance has been solid and 2009 cost cutting could drive upside in 2010. GE's segment Industrial profit has exceeded our estimates for the past two quarters, offset by higher restructuring spending that should improve cost performance in 2010. Strong mix of higher margin services businesses and resilient pricing of product coming out of the equipment backlog have been key drivers. As a result, we are raising our 2010/2011 GE Industrial EPS estimates to $0.77/$0.90 from $0.70/$0.80 on better margin performance across the portfolio and a shallower trough in Aviation and Wind equipment markets.
Yawner, however should be sufficient for quant momos to take the headline and run the stock up another 30-40 cents. And, as history will always have it, the real fun is in the report disclosures, where one finds this gem:
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.
No commentary needed. Or maybe one: Jeff Immelt is on the New York Fed Board of Directors.