Battleground: Analysts diverge on General Electric earnings power - InvestingChannel

Battleground: Analysts diverge on General Electric earnings power

This morning, Bank of America analyst Andrew Obin upgraded General Electric to Buy as he believes a multi-year reset in earnings expectations should enable the company to start to beat and raise. Conversely, his peer at Morgan Stanley downgraded the stock to Underweight, a sell-equivalent rating, citing a substantial cut to earnings forecasts and his expectation for a dividend cut. Meanwhile, UBS analyst Christopher Belfiore also cut General Electric’s rating to Neutral, citing “disappointing” quarterly results. BUY GENERAL ELECTRIC: In a research note to investors this morning, Bank of America Merrill Lynch’s Obin upgraded General Electric to Buy from Neutral, while lowering his price target on the stock to $27 from $28, due to the reset in earnings expectations. The analyst noted that he assumes negative revisions are bottoming following a reset in earnings guidance. He believes the multi-year reset should enable General Electric to start to beat and raise. Obin pointed out that in the absence of operational changes the stock will remain range-bound around current levels, and his upgrade is an explicit call on the new management’s ability to rationalize complexity and to reduce costs at GE. The fact that the company’s product line up has been renewed across the board over the past decade makes management’s job easier, he added. SELL GENERAL ELECTRIC: Meanwhile, Morgan Stanley analyst Nigel Coe downgraded General Electric to Underweight from Equal Weight and lowered his price target on the stock to $22 from $25, citing a substantial cut to earnings expectations and a higher probability of a dividend cut than he believes is priced in. The analyst argued that investors need to take action to protect against the possibility of near-term underperformance in the event of a dividend cut in November. However, Coe pointed out that his move to Underweight is not in any way a reflection on new management as he thinks new CEO John Flannery is “the right man for the mission on hand,” but the scale of the challenges he faces are greater than imagined. Overall, the analyst now believes the dividend will have to be adjusted down to reflect substantially lower earnings power as well as the fact that balance sheet leverage has increased materially over 2015/2017. MOVING TO THE SIDELINES: Also bearish on General Electric is UBS analyst Christopher Belfiore, who downgraded the stock this morning to Neutral, citing a “disappointing” third quarter, an expectation reset ahead and the risk to its dividend. The analyst noted that Power segment results were well below expectations for the second straight quarter and are expected to remain weak for the remainder of 2017 and into 2018. Belfiore also lowered his price target on the shares to $24 from $31, but noted that he thinks a lot of the negative sentiment is now reflected in the shares. PRICE ACTION: In late morning trading, shares of General Electric have dropped nearly 5% to $22.74. Year-to-date, GE shares are now down a bit over 28%.