Here’s Why GE Is Tumbling, Again
It was just this past Monday when GE resumed its plunge after a tentative stabilization, following a research report that questioned the value of GE Capital’s goodwill following the recent bankruptcy of a helicopter leasing company.
And, in a delightful (if not for the few remaining bulls) symmetry, GE is now closing off the week the same way it started it, with its stock sinking after two analysts raised more red flags around the company’s liquidity, while a report said former GE employees were being questioned by federal investigators about its troubled insurance business.
On the sell-side, Deutsche Bank analyst Nicole DeBlase slashed her price target on the stock by more than a third, from $11 to $7, over continuing questions on the industrial conglomerate (and shadow bank’s) liquidity outlook. According to Bloomberg, in DeBlase’s model, GE will likely be able to build up its balance sheet next year with cash flow from its industrial units to around 34 cents a share, assuming economic headwinds don’t worsen in the next three years and debt comes down, she said. Still, the scenario supports a lower price target on the stock, resulting in a new price target of $7.00 (down from $11.00). The bearish “downside case” assumes power unit earnings continue to decline and GE’s other business units are hit by a modest downturn. DeBlase sees the industrial units facing a cash burn of about 21 cents per share next year. However, unlike some of her even more bearish colleagues, she doesn’t see the company facing a liquidity crisis, “even in this drastic scenario.”
And speaking of her bearish colleagues, GE’s nemesis – JPM analyst Stephen Tusa – who has long been the most bearish GE voice on Wall Street, said commentary from GE’s partner Safran “supported his view that profit and cash flow growth at the aviation segment would be below consensus expectations.”
Adding injury to sellside insult, also on Friday Morning, the Wall Street Journal reported that Federal investigators are questioning former employees of General Electric about details in a legacy insurance business that led to accounting problems at the conglomerate in the past year, and whether the business failed to internally acknowledge worsening results over the years. The employees also said that they were interviewed by government lawyers.
Shares fell as much as 3.7% in pre-market trading in New York, sliding deeper into 7-handle territory and approaching its financial crisis lows of $6.66.