Shares of General Electric GE opened more than 2.5% lower on Tuesday after analysts from one of Wall Street’s top firms lowered their expectations for the embattled stock.
JPMorgan reaffirmed its “underweight” rating for GE and cut its price target for the stock to $11 from $14, the lowest forecast out of 16 research shops that cover the industrial conglomerate, according to FactSet.
“We still see structural concerns in the key Power markets, minimal margin for error on leverage,” said JPMorgan’s Stephen Tusa in a Tuesday note. “On the dividend, we have heard some espouse the 3% yield that is above the sector average. The issue is that while it's not necessarily cut near term, it is not growing, and at a ~95% payout on post divestiture FCF it's still high risk.”
Tusa also argued that General Electric’s guidance for full-year earnings of $1.00 per share is not “credible” since it does not factor in restructuring costs. The analyst said that this projection was “disconnected” from the company’s free cash flow guidance of $0.75 and not properly considering the effect of asset sales.
“GE isn't a safety stock in a more volatile market,” he added. “The bottom line is that, not surprisingly, buyers of these assets are likely selective on those that are cash rich and will not be buying 'contract assets' which will remain with GE to deliver on.”
JPMorgan’s latest call would represent a 27% downside from GE’s Monday close. The struggling stock has already lost more than 50% over the past year, including a nearly 14% slide in 2018 alone.
On top of sluggish activity in its core businesses and mounting debt issues, General Electric faces new regulatory headwinds. The company recently adopted new accounting standards that restated its earnings for fiscal 2016 and 2017—a move that came on the back of a Securities and Exchange Commission investigation into GE’s accounting for lengthy service contracts.
Meanwhile, the Trump Administration’s new tariff plan could lead to a rapid rise in metal prices that would force GE to re-value its roughly $134 billion backlog across its power, renewable energy, and oil & gas businesses.
Tuesday’s latest negative analyst note is part of a broader trend of cooling sentiment for GE. Within the past 60 days, we have seen five revisions, with 100% agreement to the downside, for the company’s full-year earnings estimates. The Zacks Consensus Estimate has lost 4 cents over that timeframe.
This sluggish estimate revision activity has helped GE earn a Zacks Rank #5 (Strong Sell). The stock is also sporting “D” grades in the Value and Growth categories of our Style Scores system.
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