More Disappointment Ahead for General Electric Investors
General Electric (NYSE: GE) stock continues to bounce near its lowest levels in more than six years following a horrendous year of trading that sent the stock plummeting more than 56 percent. Unfortunately for GE investors, analysts say things could get worse before they get better.
On Wednesday, Cowen analyst Gautam Khanna said GE is likely to miss consensus earnings expectations once again in the first quarter of 2018. To make matters worse, Khanna says GE shareholders are facing a real possibility of another dividend cut.
[See: 7 of the Worst Stocks to Buy for 2018.]
"We don't believe the 48-cent-per-year dividend is safe unless 'contract assets' convert to cash on a net basis, and/or the Power market rebounds sharply and soon," Khanna says, according to CNBC.
Last week, GE announced that it plans to restate its 2016 and 2017 financial numbers after retroactively applying its new accounting methods. Khanna said investors should brace for further downside when GE reveals its restated numbers. The most bearish implication of the restated numbers could be that it raises the cost of capital for GE, he said.
"We expect the upcoming accounting restatement and Q1 print to continue to pressure this 'show me' stock," Khanna says.
GE's finances have come under fire in 2018 after the company announced it was taking a $6.2 billion charge on its fourth-quarter earnings as part of an internal review of its financial services subsidiary, GE Capital. GE also says it intends to add $15 billion to its capital reserves over the next seven years as it continues to run off its legacy insurance portfolio. The U.S. Securities and Exchange Commission is currently investigating the $6.2 billion charge.
Bank of America analyst Andrew Obin says GE investors shouldn't expect GE Capital to contribute a single cent to the company's valuation until it moves past its current issues.
"GE Capital has become a key focus for investors trying to quantify liquidity requirements and downside case to the GE stock, given that GE parent guarantees debt and would be required to cover any incremental capital requirement at the subsidiary," Obin says.
[See: 8 Times When You Should Sell a Stock.]
Cowen has a "market perform" rating and $12 price target for General Electric. Bank of America has a "neutral" rating and $17 target for GE stock.
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