GE Stock Gets Another Cut as Recession Risks Accumulate -- Barrons.com
Another day, another cut to a price target for General Electric stock.
In a Tuesday afternoon report, Wells Fargo analyst Joseph O'Dea cut his price target for GE (ticker: GE) stock to $72 from $74. He still rates shares at Hold. It's the fifth price target cut, at least, for GE shares over the past week or so.
GE wasn't the only one cut though. O'Dea cut price targets on 17 of the 20 stocks he covers.
Two price targets went up. He raised his price target on Emerson Electric (EMR) stock to $89 from $87 and lifted the price target on Hubbell (HUBB) stock to $192 from $188
Despite the small hikes, the overall direction of targets was decidedly down. Risks for the industrial sector are building. "Risks are in the form of tough order comps, slowing short-cycle trends, [exchange rates,] and negative guidance revisions."
That's a lot for investors to track. The Institute of Supply Management PMI Index of new orders 55.6 in June, down from 62.8 a year ago. A level of 50 indicates growth, but growth is slowing.
"Short cycle" refers to business that turn their inventory frequently, selling small parts to many customers. Short-cycle businesses also see changes in economic conditions more quickly than so-called long-cycle players.
Parker Hannifin (PH) selling seals to Caterpillar (CAT) would be an example of a short-cycle business selling to a long-cycle business. Cat's machines can take months to build and can be ordered years in advance.
Industrial distributors are also short-cycle businesses. Fastenal (FAST) told investors Wednesday that it saw signs of demand slowing.
Most U.S. manufacturers generate a significant portion of their sales overseas in markets such as Europe and Asia. The euro is at parity with the U.S. dollar, down about 8% over the past three months. That's a headwind for businesses that translate their European sales back into U.S. dollars.
"Generally FX [or foreign exchange] is in the 2% to 5% range," RBC analyst Deane Dray tells Barron's when estimating the impact on quarterly sales. "It will be a headwind this quarter with the dollar strength."
All those headwinds can end up in cuts to guidance. Barclays analyst Julian Mitchell recently wrote that he expects up to 30% of the companies under his coverage to cut full year earnings guidance when they report second quarter numbers.
Investors already know about these headwinds. The question going into earnings: Are things as bad as they will get?
Industrial stocks in the S&P 500 are down 19% year to date. GE stock is off about 35%. Some bad news is already reflected. But is it enough?
GE stock is off 1.6% in early trading Wednesday. The target cut probably isn't the reason. June inflation data came in higher than expected. The S&P 500 and Dow Jones Industrial Average are off about 1% and 1.3%, respectively.