GE CEO Larry Culp presented at a broker conference this morning. The 2QTD trends are stable to improving (ex-GECAS), but the outlook for near term cash flow is modestly adverse (albeit directionally consistent). Management continues to see a path to ~$8bn FCF, but this admittedly feels like a long road.
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It is too early to judge the shape and duration of the aviation recovery, but the slow and steady rehabilitation in passenger traffic through May is encouraging, and could accelerate through the summer. We note that GE Aviation estimates are more bearish than the IATA base case, and we highlight that GE is (very probably) well positioned as it relates to airline fleet capacity shrinkage. We see low risk of multi-billion CSA write-downs (we see $1.2bn bear case) and progress payment headwinds of $2-3bn feel extreme. All in, consensus expectations feel sufficiently bearish here.
Our latest view on global capex reveals a dismal yet divergent picture. US Utility, Data Center and Food Retail are the sole remaining pockets of growth. The problem with Diversified Industrials is that there is a mix of good and bad in every stock. DOV is solely exposed to Food Retail; while ETN is only meaningful exposed to both Utility and Data Center spending. From an end market perspective, we prefer "short cycle recovery" stocks at a reasonable price: FTV and PH standout here; DOV and ETN also screen well.
The Wolfe Industrials team hosts a webcast on Fridays at 11:00AM ET to discuss industrials and transports news and themes for the week. Presenting analysts include Scott Group (Airfreight & Surface Transportation), Hunter Keay (Airlines and Aerospace & Defense), Nigel Coe (Electrical Equipment & Multi-Industry), and Rod Lache & Dan Galves (Autos, Auto Parts, & Auto Technology).
WIW #645: We see some early green shoots through May, although commentary generally falls firmly in the less negative, than true incrementally positive category. Companies remain most bullish on the margin outlook (JCI, PH standout) and see US re-shoring as a post-COVID reality. We were most surprised by acceleration in DIY demand through May, and signs of a positive RHVAC inflection. Most notably, we walk away with substantially higher SWK estimates, and we have also tweaked higher MMM on stronger April data.
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