GE Stock Is Dropping. Analyst Says the Company Is 'Missing Guidance.' -- Barrons.com
By Al Root
Shares in the industrial giant General Electric had a chance to close at a new 52-week high Tuesday. But the stock drifted down as gains in the overall market faded at the end of the day. Curiously, the Dow Jones Industrial Average closed exactly flat.
General Electric (ticker: GE) stock is likely to start further from a new high Wednesday. In premarket trading, the stock was down 15 cents, or 1.3%, to $11.25. J.P. Morgan analyst and GE bear Stephen Tusa might be the culprit. He published a negative research note Wednesday morning.
Still, GE shares have been on a tear, up more than 25% since the company reported its third-quarter numbers on Oct. 30. Better-than- expected guidance on cash flows -- plus a lack of discouraging news from GE Capital or GE Power, sources of trouble in the past -- allayed investors' concerns.
Tusa, however, doesn't see the quarterly results in a positive light.
"Key to the recent bounce in GE stock is the notion that management has set a bottom on fundamentals, with the company raising guidance a sign of change in the revision trajectory," wrote Tusa. "We disagree....GE is missing guidance on core business [operating earnings] that was set in March."
He believes the reason for the better-than-expected forecasts is lower restructuring spending, an area he believes GE management controls. For Tusa, the improvement isn't a sign of a turn in business fundamentals.
Of course, that is one interpretation. Many other analysts have weighed in on the quarterly numbers. Actually, the opinions analysts published after the results aligned with their existing ratings. No large brokerage firm either upgraded or downgraded the stock after the third-quarter numbers came out. Bears stayed bears and bulls stayed bulls.
There is nothing wrong with sticking with ratings. Broadly speaking, GE bears are still cautious, while bulls believe the turnaround being led by CEO Larry Culp is gaining significant traction.
Credit Suisse analyst John Walsh, for instance, rates GE stock at the equivalent of Hold. He wrote that the third-quarter results were "another hurdle cleared," adding that while there were no big surprises, questions still remain. It was a fine result, but he isn't recommending shares to clients yet. Wash's target price for GE stock is $10 a share.
On the other hand, RBC analyst Deane Dray likes GE shares, rating them the equivalent of Buy with a $13 price target. "Though GE remains a battleground stock, we continue to believe that these positive quarterly updates and steady game-of-inches turnaround progress should keep the bull thesis on track." Dray wrote that on Oct. 31, one day after the third-quarter earnings release.
Culp might agree with Dray. He hasn't declared victory by any stretch. "Overall, our third quarter results reflect one more quarter's worth of in our multiyear transformation of GE," said Culp on the third-quarter conference call.
Investors can pick whatever analogy suits them. The GE turnaround under Culp is in the early innings if baseball is preferred. For basketball or football people, it's in the first quarter. And like sports teams, GE has fans and the opposite of fans. Both groups appear entrenched in their opinions.
Tusa has the lowest target for the stock price on Wall Street, at $5 a share.