Wall Street Likes the Idea of GE Selling Off Its Jet-Leasing Business. Well, Almost Everybody Does.
GE has declined to discuss anything about any deal.
Sebastien Bozon/AFP via Getty Images
Investors like that General Electric wants to combine its jet-leasing business with AerCap. They think GE would be smart to shrink the size of GE Capital and tap another source of cash. And they showed just what they think of the deal by driving up shares to a new 52-week high.
They backed off a little Tuesday, with General Electric stock (ticker: GE) down 1.5% in early trading. The S & P 500 was up about 1.5%.
Most analysts covering the company are giving the Aercap (AER) deal a thumbs-up, too, but not everybody.
Gordon Haskett analyst John Inch, for example, is one who’s more cautious, rating GE shares Hold with a $7 price target. He questioned the logic of the deal in a research report. “Timing would appear at cycle bottom,” Inch wrote Monday. The company’s jet-leasing business, General Electric Capital Aviation Services, or GECAS, lost almost $800 million in 2020 as Covid-19 ravaged the commercial aerospace industry.
Selling low is never a good idea, but GE probably will keep its hand in jet-leasing through AerCap stock. GE declined to comment on the status or structuring of any deal.
Other concerns that Inch has relate to GE’s ability to maintain market share in jet engines without a captive leasing business. And if GECAS goes, more focus would placed on GE Capital’s long term-care insurance business.
Bank of America analyst Andrew Obin takes Inch’s point about insurance, but isn’t worried about leasing market share. A deal might mean more opportunity for an independent GECAS. “Historically, GE had significantly lower cost of capital versus other independent aviation lessors because of its AAA credit rating,” Obin wrote.
The cost advantage is gone since the 2008-09 financial crisis, Obin said. What’s more, new lessors have entered the market. While the market has grown, GECAS assets have declined from about $50 billion to about $36 billion in the past dozen years. Obin believes a stronger, combined leasing entity might be able to grow its asset base.
Obin is more bullish than Inch, rating shares Buy and increasing his price target to $15 from $14.
Barclays analyst Julian Mitchell is a believer like Obin. He called the deal a win-win for both GE and AerCap in a Monday research report. A deal would simplify GE’s balance sheet. “For many investors, for whom Capital remains a black box, sucking funds from GE Industrial …the fact that Capital’s liabilities still stand at [more than $100 billion] remains a major barrier to owning more shares in GE.”
Mitchell also believes a deal would provide synergy opportunities for the combined business. He rates GE shares Buy and has a $13 price target for shares.
Most of Wall Street falls in line with Mitchell and Obin. About 65% of analysts covering GE rate shares Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 60%. But recent gains have left shares trading above the average analyst price target of about $13 a share.
GE stock is up about 30% year to date, far better than the comparable change of the S & P 500.
Write to Al Root at [email protected]
