Analyst: GE Has More 'Unpleasant Surprises' Ahead

Despite General Electric Company GE's stock losing 15 percent of its value since the start of 2018 and more than 50 percent over the past year, Barclays isn't ready to recommend buying the stock.

The Analyst

Barclays' Julian Mitchell initiated coverage of General Electric's stock with an Equal-weight rating and $16 price target.

The Thesis

Investors shouldn't assume that GE's weak stock performance and "very negative" sentiment makes it screen attractively at current levels, Mitchell said in a note. There are still too many material downside risks ahead to recommend buying the stock, including a likely reduction to management's 2018 guidance and low expectations for any upside from a new Power cycle given a "stretched" balance sheet.

GE has recently delivered multiple "unpleasant surprises," including a dividend cut, insurance cash drain, and large charges in Power and it's not yet clear if new surprises are forthcoming, the analyst said.

Looking forward to 2020, Mitchell's core EPS estimate of around 95 cents per share implies a $15 valuation at current levels. On top of that, the "complicated" nature of the company and upcoming divestments adds to an already muddy picture. GE may see its free cash flow capped at up to $9 billion through 2020, which implies it will be left with up to $3 billion in a given year after accounting for pension costs and dividends.

Price Action

Shares of General Electric were trading lower by 0.6 percent at $14.85 Thursday morning.

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