How Analysts See GE After the Dividend Cut and Weak Guidance

Industrials

Published: October 31, 2018 10:30 am

Last Updated: January 11, 2020 3:36 pm

General Electric Co. (NYSE: GE) has become an embarrassment among the top American corporations. With two CEO changes in the past year, now GE has had to go as low as dropping its dividend to a whopping penny per common share. And it seems ever more likely that GE’s future will have be predicated on being smaller, via breakups, rather than growing with more acquisitions.

While the reaction to GE’s continued malaise has been harsh, GE’s guidance is really for unspecified earnings targets other than that they would significantly miss its profit targets for the year.

Many analysts on Wall Street have continued to ratchet down their estimates, expectations and official price targets. GE shares even briefly traded under $10 on Tuesday for the first time going back to the recession in 2009.

24/7 Wall St. has tracked some of the analyst calls made on Tuesday and Wednesday covering what was once the world’s largest and most powerful conglomerate. It now seems hard to imagine that the credit ratings agencies had maintained Triple-A credit ratings for so many years.

UBS was an outlier, upgrading GE to Buy from Neutral, but with a mere $13 price target. The firm feels that GE is again reaching a “peak uncertainty” and also noted that CEO Larry Culp can turn this big drifting ship back around. After the sell-off, the firm even noted a 3:1 reward-to-risk scenario. That said, the target does not exactly scream the biggest buy in the world when investors consider how much of a perpetual disappointment this conglomerate has been.

On Tuesday, RBC Capital Markets also went against the grain by raising its rating to Outperform from Sector Perform. Its target for General Electric is higher at $15, implying that the company has seen all but the kitchen-sink thrown out.

Merrill Lynch maintained its Neutral rating and $14 price objective. The firm thinks GE’s dividend cut actually should be well received as it is the least expensive way to shore up its balance sheet at the current stock price. That said, GE did not provide any additional update on its ultimate path to drive leverage down to 2.5 times and will focus on sustainable credit ratings of the company’s goal at Single-A. Its investment rationale said:

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. However, we do not see the stock outperforming in the face of possible further negative earnings revisions.

Other key analyst calls were seen as follows:

Barclays lowered its price target to $13 from $16.
Citigroup maintained its Buy rating but cut its target to $18 from $19.
Cowen lowered its target price to $11 from $12.
Credit Suisse lowered its target from $14 to $12.
Deutsche Bank lowered its target to $11 from $13.
Independent Research maintained its Hold rating but lowered its target to $11 from $13.

GE shares hit a low of $9.87 on Tuesday, but the stock did manage to close up at $10.18. Its shares had traded as high as $10.39 on Wednesday, but the stock was last seen down 1.7% at $10.01 on Wednesday morning.

GE’s consensus analyst target price from Thomson Reuters was last seen at $14.94, which is down from $16.68 just a month earlier and from $17.11 at the end of August. That consensus target price was still above $25 a year ago, but that was when GE was operating in a different world.