General Electric Co. (NYSE: GE) managed to turn in yet another solid earnings report under CEO Larry Culp. GE stock rose by about 7% on Wednesday morning, despite some concerns coming from aviation in 2020.

It is not unusual for analysts to make upgrades and downgrades after earnings, but Merrill Lynch is out with a fresh upgrade just a couple of hours after the report. Andrew Obin has raised GE’s formal rating to Buy from Neutral, and the analyst raised his price objective to $16 from $12 in the call. GE closed at $11.73 ahead of report, and the shares were up 5.1% year to date ahead of Wednesday’s opening bell.

There is one point that should be noted here. Sentiment around GE has remained weak, with many analysts still having less-than-current price targets. The most recent street-high target going into earnings was $14. Merrill Lynch’s $16 price objective is the new street-high target from major sell-side firms. Some analysts still even have their formal price targets down under $10.

The main view for the analyst upgrade was an improved free cash flow trajectory. Obin did warn that the long turnaround situation here likely will have its share of ups and downs, but making progress on the cash flow drivers will stand above some of the negatives in the end. After all, weak cash flows are what have kept many GE investors from assigning full multiples to the core businesses.

To prove the point, Obin noted that GE’s industrial free cash flow of $3.9 billion was better than his own $3.2 billion forecast for the fourth quarter, with strong numbers from Power and Aviation and a contribution from lower corporate expenses. The analyst also noted that GE’s 2020 guidance of $2 billion to $4 billion in free cash flow from its Industrial operations was materially higher than his own forecast of $1.8 billion.

The analyst did note an adjustment for the BioPharma sale. His forecast now calls for $4.8 billion in free cash flow from the Industrial unit for all of 2020, which would correspond to a forecast of $3.7 billion after backing out the BioPharma operations.

While the $16 price objective is based on a sum-of-the-parts analysis, Merrill Lynch’s targets are now based on a multiple of 12 times EV/EBITDA for 2021 Industrial estimates. The firm also assigned a negative value of $10 billion to GE Capital. That 12-times multiple would then bring GE more in line with comparables, and Obin believes that is appropriate based on GE’s improving execution and declining leverage.

The Power and Aviation strength was outlined as follows:

Power and Aviation drive operations beat in the fourth quarter, Capital a positive The operating highlight of the quarter to us was a solid beat in Power on revenue and ops (+$0.02/sh EPS beat), which was welcome after a relatively weak third quarter (2019). Notably Gas Power Services grew in the fourth quarter. Aviation was another contributor at $0.02/sh. Renewable continues to be a drag (-$0.02) on Haliade-X investment and operating challenges at Hydro and Grid.

Obin’s investment rationale sums up the news view for higher rather lower shares:

We believe that GE has significant cost cutting opportunities under the new leadership. We note that the company has undergone a significant reinvestment cycle, positioning it well from a competitive standpoint. The improving free cash flow trajectory should be supportive for shares.

After almost 30 minutes of trading, GE shares were last seen up 7.4% at $12.60, and the trading volume of 60 million shares was already at a full day’s worth. GE’s pre-earnings consensus target price was $11.27.

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