GE Plunges After JPMorgan Casts Doubt on Profit ForecastBy
Free cash flow won’t support $1 a share earnings, report says
Analyst cuts price target on GE shares to $11 from $14
General Electric Co., mired in a deep slump and facing an accounting probe, has conceded that any turnaround will be slow coming. Now, a JPMorgan Chase & Co. analyst says it’s worse than you think.
Management’s earnings guidance “is not a credible number,” Steve Tusa said in a note Tuesday, as he cast doubt on already lowered forecasts made by GE. He cut his price target on GE shares by $3 to $11, the lowest among analysts following the company, sending the stock down the most in more than a month.
It was the latest blow for the industrial giant, which is facing challenges ranging from cash-flow shortfalls to weak demand for industrial equipment and a probe of its accounting by the U.S. Securities and Exchange Commission. Chief Executive Officer John Flannery, who took the helm in mid-2017, has pledged to reshape the company and cut costs as he tries to pull GE out of one of the worst slumps in its 126-year history.
The company has said earnings would be around $1 a share in 2018, down from an earlier projection of $2. But Tusa said he expects profit of 88 cents a share, and said there’s a “plausible case” that it could be even lower.
He said challenges in the power and renewable-energy operations, along with dilution from possible asset sales, suggest the company will bring in less free cash flow than its current forecast. And while Flannery already halved the dividend in November, the payout will still be elevated as GE sells assets, leaving it at “high risk” for an additional cut, Tusa said.
The JPMorgan report renewed bearish sentiment around the stock after a brief rally in the past week on positive comments from William Blair & Co., which said in a March 9 note that GE’s “downside appears minimal.” The shares fell 4.4 percent to $14.43 Tuesday, the biggest drop since Feb. 8, bringing the 2018 decline to 17 percent.
GE said late Monday that it withheld bonuses for most top executives in 2017 due to the company’s poor performance, the first time it has done that. Still, former CEO Jeffrey Immelt, who left late in the year, earned $8.11 million in total compensation, and Flannery took home $9 million, GE said in a regulatory filing.
David Joyce, the CEO of GE Aviation, plans to speak Wednesday at a conference hosted by JPMorgan.