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GE stock deflates for a second day after announcing major overhaul

Reuters 

By Ankit Ajmera

(Reuters) - General Electric Co's drifted lower for a second straight day on Tuesday after investors wondered if a massive overhaul by new Chief Executive John Flannery to save billions and make the conglomerate smaller was enough to revive the 125-year old Dow component.

GE's stock fell as much as 8.2 percent to $17.46, setting it up for its worst two-day losing streak since the financial crisis in 2009. Flannery talked for two days about sweeping changes that will focus on three core businesses but instead it cut about $24 billion off GE's market capitalisation.

Several brokerages lowered ratings and price targets on the stock, disappointed that GE's plan was not more aggressive.

Deutsche Bank analyst John Inch, who has a "sell" rating on with a price target of $18, said bulls had expected the company to move towards outright dismantlement of its portfolio, but stuck to the framework of divesting $20 billion in assets.

Inch said it seems unlikely can unlock associated value through "sum of the parts" as it keeps the bulk of its portfolio intact.

Analysts also said GE's move to cut its annual dividend to 48 cents from 96 cents was steeper than expected, putting more pressure on the stock.

"With more than 40 percent of GE's common equity owned by retail investors, we believe substantial near term selling pressure on could further ensue as retail investors who previously counted on the dividend look elsewhere," Inch said.

RBC Capital Markets analyst Andrew Krill downgraded the stock to "sector perform" from "outperform" and lowered the price target by $5 to $20.

Krill said the market was caught by surprise by the magnitude of the missteps and secular challenges at GE's power business, as well as the systemic cash flow shortfalls.

"Particularly damaging, in our view, was the admission that had been paying out a dividend above its industrial free cash flow for a number of years, and that Capital would not be paying a dividend to the parent in 2018."

J.P.Morgan analyst Stephen Tusa, who has an "underweight" rating on the stock with a price target of $17, said cost cut targets were not as ambitious as most investors had expected.

is aiming to reduce overhead costs by $2 billion next year, with half of that coming from its troubled power unit, which sells electrical generation equipment.

"The demise of General Electric over the past year has been dramatic, yet arguably unsurprising," said Jordan Hiscott, chief trader at London-based trading services provider Ayondo Markets.

(Reporting by Ankit Ajmera in Bengaluru; Editing by Bernard Orr)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, November 14 2017. 23:59 IST
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