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New General Electric Issues Show Shares Could Drop to $10From Barron's New General Electric Issues Show Shares Could Drop to $10 By Teresa Rivas Shares of General Electric are falling Thursday, after JPMorgan Chasewarned of another potential pitfall ahead, related to its gas turbines. Where we were: Where to start? Leverage worries, dividend concerns, and getting booted from the Dow Jones Industrial Average are just a few of the recent lowlights. Where we’re headed: JPMorgan argues that the shares could fall to $10. General Electric(GE) has seen better days (and months and years). The stock is down nearly 29% since the start of 2018 and has tumbled 50% in the past 12 months. We’ve spent plenty of time documenting its woes, from debt to false hopes and worries about overly optimistic guidance. Today, GE is falling again, this time after JPMorgan cut its price target on the shares to $10. Permabear Stephen Tusa reiterated an Underweight rating on the shares and lowered his price target by $1. His concern today? Problems with GE’s gas turbines. He writes that his research, now confirmed by GE and the customer, revealed a failure in a first-stage blade on an H-frame turbine in one of its initial “marquee” installations in Colorado. While it’s hard to tell what impact this will have on GE at the moment, he writes that it’s yet another negative development for a company that’s already had too many problems bubble to the surface. For its part, GE is minimizing the issue, he writes, blaming the problem on an “oxidation issue,” and working with customers to find fixes. However, Tusa says that his discussions with other industry sources tell a different story. Indeed, “one channel participant we talked to spoke of the break at less than 10,000 hours as ‘historic,’ and the problem is material enough for Exelon(EXC) to have shut the plant down, along with the award winning Wolf Hollow plant (for precautionary measures), suggesting it’s worse than GE says.” If the problem with the blade is as bad as it seems, then it would be hard for bulls to argue that GE Power is only suffering from a cyclical downturn, Tusa writes, as this is obviously a company-specific issue. He argues that the “mere occurrence is significant in the context of the state of the story.” Not only do orders not necessarily translate into cash flow for GE, but here orders may even lead to losses and liabilities. Weaker results at GE Power and some impact to the franchise’s value leads him to his lower price target. GE is down 3.3% to $12.44 this morning. The Industrial Select Sector SPDR ETF(XLI) is down 0.1% to $79.70. Make the Connection JPMorgan isn’t the only firm worried about GE’s power business. Maybe there are better bargains elsewhere in industrials. |
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