Ge neral Electric (GE) is tumbling again Tuesday, following a pair of downbeat analyst notes on the heels of its analysts day, where it unveiled its restructuring plan and cut its dividend.
RBC Capital Markets' Deane Dray and his team cut their rating on the stock to Sector Perform from Outperform, and shaved $5 off their target price, to $20.
Dray writes that he believes the company's turnaround will now be more protracted than he, and many others, previously thought. Certainly, GE has bene in a funk for some time, and the market wasn't expecting miracles, but he writes that CEO John Flannery's highly anticipated plan fell short of expectations in terms of changes for GE's business model and portfolio. He calls the new disclosures about missteps at Power and FCF shortfalls as "particularly unsettling."
More detail from his note:
We believe the new disclosures at GE's analyst meeting suggest deeper structural problems than we had anticipated. We had been thinking that this Nov-13 plan unveiling could be the catalyst for a turnaround. Instead, we are now looking at increased execution risk and a concern that this protracted recovery might get sidelined by an eventual economic slowdown. Even with the shares having significantly underperformed this year, it is hard to see anything better than a Sector Perform return potential, and risk-reward looks balanced.
Elsewhere, Oppenheimer's Christopher Glynn and Patrick Schuchard reiterated an Underperform rating on GE and lowered their earnings estimates for the company for 2018 and 2019:
GE guided 2-7% Industrial segments OP growth for 2018 (vs. revised basis for 2017/ revenue recognition standard), with adjusted EPS of $1.00-1.07 vs. our prior $1.15 in-line estimate. GE switched to adjusted EPS from "Industrial operating EPS + GEC verticals." New basis still excludes non-operating pension; changes now reflect (1) inclusion of other GEC continuing operating costs (reduces 2017 basis by $0.06-0.09, estimate lowers 2018 basis by additional $0.05+ from non-repeat of tax benefits), (2) revenue recognition standards change (lowers 2017 basis by $0.16), and (3) excluding restructuring/gains (raises 2017 basis by $0.24). As a result, adjusted 2017 EPS guidance of $1.04-1.12 compares to prior basis $1.05-1.10.
GE down 5.9% to $17.90 in recent trading, and has fallen 43.4% this year.