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GE has lost its ability to be a 'benchmark': analyst

Investors pushed shares of General Electric (GE) up nearly 12% after better-than-expected third-quarter results on Wednesday, but at least one analyst thinks that rally was unjustified.

Longtime GE bear and senior analyst at Gordon Haskett, John Inch, told Yahoo Finance’s “The First Trade” that GE did not demonstrate fundamental improvement in its business in the third quarter. At the same time, he also didn’t think the results showed a material deterioration.

Instead, Inch said what happened at GE was an all too familiar story for investors.

“This was the traditional beat and raise after analysts had complicitly lowered their numbers right ahead of the quarter,” said Inch. “[Former CEO] Jeff Immelt played this game for over a decade, and he did relatively successfully, until it caught up with him, and it looks like current management is doing the same thing.”

Inch rates GE an “underperform” with a $7 price target, below its current share price of around $10.

The company showed modest incremental progress on its turnaround under CEO Larry Culp. GE’s adjusted earnings came in at 15 cents a share, vs. Wall Street forecasts for 11 cents a share. Total revenue of $23.36 billion beat analyst forecasts of $22.93 billion.

(AP Photo/John Minchillo, File)

RBC analyst Deane Dray was more upbeat about the results. In a note to clients Dray said, “Though GE remains a battleground stock, we continue to believe that these positive quarterly updates and steady game-of-inches turnaround progress should keep the bull thesis on track.”

Inch said there’s no evidence that GE is in a better position today than it was a year ago.

“What the company’s simply been doing is it’s been selling off its businesses and paying off its debt, and in some cases, the prices it’s getting for these businesses aren’t particularly remarkable,” he said.

Inch pointed to GE’s planned sale of its biopharmaceutical business to Danaher (DHR) for $21.4 billion as an example of an asset being sold at a discount.

Raising equity capital

Inch expects GE’s stock to be volatile based on headlines and news flow. Where it once attracted a wide swath of investors Inch says GE is now more of a play for day-traders and hedge funds. “Its ability to be a benchmark and attract people en masse, that’s kind of been lost,” he said.

“If CEO Larry Culp wants to put all this to bed, he really needs to go raise equity capital. We’ve been saying this for two years now,” said Inch.

It’s undoubtedly the less popular way for a CEO to raise cash since raising equity capital dilutes the value of investors' existing shares.

Inch described it as “steam-rolling over shareholders” but added: “If the mandate is to save the company, sometimes you’ve just got to do what you’ve got to do.”

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