General Electric won two upgrades to the equivalent of a buy rating on Tuesday, as the board’s appointment of Larry Culp as CEO is seen as a “game changer” that should instill the market with confidence in the company’s turnaround prospects, said analysts including Wolfe Research’s Nigel Coe.
Investors should have greater conviction that Culp will be able to manage the strategic and tactical execution needed to move past the power unit challenges and contingent liabilities, Coe wrote in raising the stock to outperform from peer perform and lifting his price target to $16. RBC analyst Deane Dray, who also upgraded GE to outperform from sector perform, added the accelerated management change and the board’s choice to bring in an outside candidate creates a floor for the stock price.
“It’s a definitive signal of cultural change, performance accountability and that current problems are fixable,” Coe wrote in a note Tuesday. “The proximate cause of GE’s current malaise is epic equity capital value destruction ... we can say with high confidence that this period is now behind us.”
Still, both cautioned there are uncertainties ahead for GE, which could include additional departures of senior executives and a second cut to the dividend. “Another cut, assuming it is the last cut, should not be viewed as a barrier to owning the stock,” Coe wrote. GE shares rose 2.2 percent in pre-market trading in New York Tuesday, after surging 7.1 percent on Monday.