Problems have been piling up at industrial heavyweight General Electric (GE). Mounting debt, furloughs, and a grounded aviation industry have raised question marks concerning its ability to withstand COVID-19’s impact. To wit, even the market wide recovery has completely excluded General Electric from the rally. Shares are still down by a depressing 45% since the turn of the year.
Weighing on investors’ minds is the company’s heavy exposure to the commercial aviation sector. The industry’s uncertain future has even resulted in Warren Buffet divesting his considerable portfolio of airline stocks. With the majority of GE’s FCF generated from the Aviation segment, the pandemic has necessitated urgent restructuring. GE has announced a reduction of its international Aviation workforce by 25%, amounting in total to 13,000 jobs. Other cost cutting measures have been put in place, with operational costs being reduced by more than $2 billion.
Although the bulk of concern regarding GE’s decline has centered on its main revenue generator - Aviation - other parts of the business are struggling as well.
“Most all segments are experiencing sales/operating disruptions: At Power, GE expects ~20% gas turbine outages shifting 1H to 2H; Renewables faces supply chain challenges layering onto structural operating challenges; Healthcare moderate organic pressure (and likely mix headwinds), net of surges for some products,” said Oppenheimer analyst Christopher Glynn.
Although Glynn believes the company’s" “liquidity looks in good shape,” he expects more difficult times ahead, and foresees an operating loss at Aviation in the second quarter.
To this end, the 5-star analyst reiterates a Perform (i.e. Hold) rating on GE shares, which reflects "reflects scope and breadth of operating challenges, against view of significant restructuring and progress on overall management of operations.” (To watch Glynn’s track record, click here)
Considering GE’s prospects, the Street is currently split down the middle. 14 analysts have published a review over the last 3 months, with 7 Buys and Hold ratings each. The bulls are in the driving seat, as the average price target hits $8.53 and implies possible upside of 36% in the year ahead. (See GE stock analysis on TipRanks)