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GE Stock Bulls Say the Worst Is Over. One Prominent Bear Says They're Wrong. -- Barrons.com GE Stock Bulls Say the Worst Is Over. One Prominent Bear Says They're Wrong. -- Barrons.com Dow Jones By Al Root Analysts remain polarized about the prospects for General Electric. Wall Street target prices range from $5 to $15 a share, more than twice as wide as the typical bull-bear spread for stocks in the Dow Jones Industrial Average. And It doesn't appear analysts will come to a meeting of the minds soon. On Tuesday, J.P. Morgan analyst and GE bear Stephen Tusa questioned the pace of recovery in General Electric's (ticker: GE) troubled power division. He is still worried about the future of fossil-fuel-based electricity generation and thinks the Street is giving the company too much credit for improving power operations and cutting costs. "The stock narrative around GE Power has shifted to optimism through a combination of a better [first half 2019] on headline orders, along with management's recent raise of guidance," Tusa wrote. But he doesn't think the power business is turning around and points to falling equipment sales. Equipment revenue was down in the first half of the year compared with 2018. "We think Sell Side Bulls may be looking for a bright side here, but we don't know how not shipping products can serve as proof of better execution." Wall Street's "sell-side" refers to analysts writing research that they "sell" to professional investors running, say, mutual funds. Other sell-side analysts on Wall Street, however, are more sanguine about GE Power. The division "is gaining profitable share," Credit Suisse analyst John Walsh wrote in a late August research report. He thinks new products from GE Power can help turn operations around, despite known market headwinds. "GE is also seeing higher aftermarket service attachment rates on HA units." The HA, or H-class, turbines were introduced by GE in 2014 and are more efficient than older models. When asked for comment, GE referred Barron's to recent management comments about the power division. GE thinks it is realistic about the global power market and is planning for long-term world demand of 25 to 30 gigawatts a year of fossil-fuel electrical generation. That is far below what demand was in the recent past. A gigawatt is a measure of power-generating capacity. As the world economy grows, the demand for electricity grows, but the world is shifting from fossil fuels to renewable sources of power generation. GE also has renewable-power offerings, such as wind turbines, and recently combined its renewable and power-grid assets into a new business unit. Of course, it is positive for investors to consider both sides of an argument. And it is important to consider both sides when opinions diverge widely, as they do with General Electric. Still, most of the bull-bear debate comes down to trust. Bears still don't trust GE management, after being burned by optimistic guidance from the company under previous management. Bulls see CEO Larry Culp's leadership as a new positive and believe he is on the right path to restore the company to consistent profitability. "We recently attended the [Danaher] Water Quality investor day in Colorado," Tusa said in his report. "The discussion with plant managers and the business heads reinforced our view of how significantly different the business of [Danaher] and GE Power are, and therefore how different the task at hand is running one versus the other." That's true. Danaher (DHR), which Culp previously ran, is a "short cycle business," with many products that sell quickly for relatively low prices. GE Power is a "long cycle business," with fewer products that sell slowly for huge amount of money. Still, at GE Power Culp is trying to implement lean-manufacturing techniques that can work in any industrial environment, just as he did at Danaher. Culp has been the CEO for less than and year and it is still too early to analyze how things might turn out. "We want to be positive, but we want to be grounded," Culp said about GE Power at an investor conference last week. That seems prudent while the bull-bear debate rages on. Tusa rates GE stock the equivalent of Sell with a $5 price target. Walsh, who is not a GE bull, but still sees positive signs at GE Power, rates shares Hold with an $11 price target. GE shares were down 0.2% to $9.34 Wednesday morning, roughly in line with a fall in the S&P 500. |
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