Sell GE, Earnings Won’t Matter: Deutsche Bank – TheTradersWire

Sell GE, Earnings Won’t Matter: Deutsche Bank

Photo

Sell GE, Earnings Won’t Matter: Deutsche Bank

By Shoshanna Delventhal | September 12, 2017 — 10:09 PM EDT

As Boston-based multinational industrial conglomerate General Electric Co. (GE) struggles to revamp its business, instating a new CEO after facing pressure from activist investors who lost patience with its turnaround, one team of analysts on the Street has joined the growing number of bears now doubting whether the company can even manage to maintain its praised dividend payout. (See also: The Future of General Electric: The Red or Blue Pill?)

Analysts at Deutsche Bank issued a downbeat research note on GE this week, cutting their price target from $26 to a “Street low” of $21, well ahead of the company’s earnings, slated for October. Deutsche Bank’s John Inch wrote to clients that “2017 results would no longer appear to matter as much.” Given the new CEO’s pending review, including the “assumed earnings reset lower coupled with an updated strategic playbook,” the analyst expects the next two quarters to have less share price significance, given that the expected results of the upcoming review are “likely to dominate investor sentiment.”

Diminished Dividends?

As the review is scheduled after the upcoming earnings report in November, Deutsche Bank anticipates “substantial subsequent charges and potential portfolio re-classifications” that will overshadow fourth-quarter results and make them difficult to compare and analyze. As a result, although it may seem that many are focused on anticipating the absolute level of the 2018 EPS reset, the investment bank expects the outlook, and “investor conviction” to be the main drivers of GE’s future share price.

“For a variety of reasons, including GE’s large size and complexity hurdles, a scenario of rapid growth in the foreseeable future seems off the table,” concluded Inch, who also doubts that GE’s dividend will remain intact. “Cash pressures, challenged business outlooks and substantial pension underfunding could still result in a dividend cut,” wrote the analyst. “While GE could continue to sell off businesses and other assets to raise capital, eventually this source of funding should run out.”

Trading up 0.2% on Tuesday afternoon at $23.76, GE stock reflects an approximate 25% decline year-to-date (YTD), versus the SP 500’s 11.4% gain over the same period. (See also: GE Tanks, Fundamentals ‘Worse Than We Think’: JPM.)

 

Published at Wed, 13 Sep 2017 02:09:00 +0000

About the author

TheWire

Online resource for daily updates and information relating to investing stocks, bonds, forex, real estate and much more.