General Electric Co. (NYSE: GE) was down initially but was then indicated up early Thursday after the company further updated its guidance for 2019. CEO Larry Culp put guidance under expectations, but the reaction on the upside is being tied to GE’s view that its industrial free cash flow will be positive in 2020 and more positive views for 2021. GE sees its industrial segment organic revenues growing in the low- to mid-single-digit range, with margins ranging from flat to 100 basis points for industrial free cash flows coming in a range of −$2 billion to flat.

Value investors who primarily look at price-to-earnings (P/E) ratios will have to focus on 2020 and 2021. GE put its adjusted earnings in a range of $0.50 to $0.60 per share for 2019. The Refinitiv (Thomson Reuters) consensus estimate was $0.70 per share, but the range was quite wide at $0.45 to $0.92.

GE’s power business has been struggling and it had negative cash flow of $2.7 billion in 2018, with Culp warning that it will be worse in 2019 before getting significantly better in 2020 while still being negative. Culp also forecast positive free cash flow for the unit out in 2021, and Thursday’s outlook follows a prior industrials outlook offered a week earlier.

GE has faced limited demand for power plant equipment, and that market is expected to remain stagnant through 2020. The company also has upgraded turbines after oxidization created some cracking in them. While Culp called it serious turnaround mode, he also warned that this is not going to be quick by any stretch.

The conglomerate has been in the midst of serious change under Culp. In the presentation materials, GE outlined how it wants to protect its credit ratings. The company remains committed to its financial policy of targeting a rating in the single A range. It is also targeting an industrial leverage ratio of less than 2.5X net debt to adjusted EBITDA and a GE Capital debt-to-equity ratio of less than 4X.

Culp said at the presentation:

GE’s challenges in 2019 are complex but clear. We are facing them head on as we execute on our strategic priorities to improve our financial position and strengthen our businesses. We have work to do in 2019, but we expect 2020 and 2021 performance to be significantly better with positive Industrial free cash flow as headwinds diminish and our operational improvements yield financial results. We will continue to take thoughtful actions to reduce downside risk and increase upside optionality to create long-term value for our shareholders.

Check out GE’s webcast to see all 38 pages of slides.

Note that GE’s Baker Hughes received two analyst upgrades this week and GE will exit that position sooner than expected back in 2018. GE also has reached a deal with Danaher to sell its biopharma business for more than $21 billion.

There is one takeaway that investors really need to challenge companies taking turnaround roads in the coming years. The possibility of a brewing recession in 2020 or 2021 is being more widely discussed, though one not as severe as the Great Recession a decade ago. What happens to all the turnaround projections at that point?

Shares of GE were last seen trading up 2.4% at $10.25 on Thursday, in a 52-week range of $6.40 to $14.99.

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