Analyst Actions: GE, Delta and Northwest Airlines, Johnson Contols
GOLDMAN REMOVES GENERAL ELECTRIC FROM AMERICAS BUY LIST, DOWNGRADES TO NEUTRAL
Goldman Sachs analyst Deane Dray says he's downgrading General Electric (GE) on surprising first quarter miss and lower guidance. He cuts his 6-month price target to 34, as he expects the magnitude, timing of GE's miss and sharply lower 2008 guidance to shake investor confidence and leave GE range-bound at best over the near-term.
Bottom line, Dray says this is both a broad-based financial services and industrial/consumer miss and disappointment. He believes the miss and guidance cut raises credibility concerns for GE over the near term, given that CEO Jeffrey Immelt expressed confidence and reaffirmed guidance and operating targets on a March 13 retail webcast.
He says this implies that the back half of March deteriorated significantly, which is especially unnerving.
CREDIT SUISSE UPGRADES DELTA AIR LINES, NORTHWEST AIRLINES
Credit Suisse analyst Daniel McKenzie says aggressive capacity cuts by Delta Air Lines (DAL) and Northwest Airlines (NWA), along with DAL's tentative agreement (TA) with pilots prompt upgrade of both stocks to outperform from neutral.
McKenzie notes as the management teams think about business plans looking ahead, they must conclude crude can go to $120. Hence, his view regarding the imminence of industry M&A.
He says Delta's TA with pilots is a green light to move ahead with a Northwest merger. He notes coping today requires different, more robust infrastructure, which M&A offers. He says he assigns a 98% probability predicated in part on his industry thesis, but also his belief that Delta and Northwest management teams have a desire to move ahead.
JPMORGAN DOWNGRADES JOHNSON CONTROLS TO NEUTRAL FROM OVERWEIGHT
JPMorgan analyst Himanshu Patel says the downgrade of Johnson Controls (JCI) is based on increasing concerns from sharply slowing leading indicators of North American (NA) commercial construction and HVAC equipment orders, and weakness in NA automotive mix and volumes. He notes NA mix degradation has clearly accelerated beyond expectations, with pickups/SUVs falling fast; meanwhile, he says European mix is also showing early signs of deterioration as consumers migrate from C-segment to A/B segment cars.
Patel says consensus estimates for 2008 may still be achievable, but probably with currency offsetting weakness in core earnings - arguably unrepeatable in 2009. He cuts $2.60 2008 EPS view to $2.45, and $3.25 for 2009 to $2.85.