General Electric shares fell sharply Tuesday after an influential Wall Street analyst said already-diminished financial expectations for the slumping industrial giant remain too lofty.
Near 1545 GMT, shares of GE were down 4.0 percent at $14.50 following a report from JPMorgan Chase analyst G. Stephen Tusa, who dropped the price target on the company from $14 to $11.
GE was by far the worst performer in the Dow last year after its earnings profile was badly dented by the downturn in its oil-related business and weak profits in its power business due to global oversupply of turbines.
Tusa, who has long argued that GE’s problems are more deep-seated than commonly realized, said many investors seem to be accepting that GE’s power division will be able to achieve 15 percent profit margins once the market turns around.
“We do not think this is a reasonable range, and any margin that moves into the double digits will be coupled with significantly lower revenues,” the analyst said.
Investors are also not giving full weight to the financial consequences of GE’s plans to sell off more than $20 billion in assets, or to the costs associated with restructuring and job cuts, the report said.
The bottom line, Tusa argued, is that GE’s free cashflow will be closer to 50 cents per share, not 74 cents, the level implied by the company’s targets. Free cashflow is a key financial benchmark that can affect dividends and other shareholder payouts.
GE chief executive John Flannery was tapped last year to turn around the company. Besides job cuts and asset sales, GE has also shrunk the size of the board of directors.
GE, citing the company’s “disappointing” performance in 2017, disclosed Monday that for the first time in its 12-year history company leaders, including Flannery and former chief executive Jeff Immelt, did not receive bonuses.