RBC: GE's turnaround won't happen fast enough (GE)

pulse

November 14, 2017 3:48 PM

GE's turnaround plan was announced on Monday. For Deane Dray, an analyst at RBC Capital Markets, the plan isn't enough, and won't happen fast enough.

GE's turnaround plan was announced on Monday.
For Deane Dray, an analyst at RBC Capital Markets, the plan isn't enough, and won't happen fast enough.
Dray downgraded the stock from a buy to a neutral on the news and lowered the price target by 20%.

GE's new CEO John Flannery announced a rash of changes on Monday with the hopes of turning around the struggling company. After cutting the company's dividend and lowering forward-looking guidance, shares of GE fell about 7.49% on Monday.

On Tuesday, the company continued to fall as analysts processed the potential impacts of all the changes.

"We are downgrading GE from Outperform to Sector Perform based on our expectation that the company's turnaround will now be more protracted than previously anticipated," Deane Dray, analyst at RBC Capital Markets, said in a note to clients. "While the market was not expecting any quick fixes, we believe that CEO John Flannery’s highly anticipated plan fell short of expectations."

On Monday, GE announced the highly-anticipated details of Flannery's plan to turnaround the company. GE announced a 50% cut in its dividend to $0.12 per share, a reduction in its total headcount, a lower than expected 2018 guidance and the sale of several underperforming units.

Dray said the company's plan doesn't live up to the sweeping reset RBC had been hoping for. The company's dividend cut pointed to cashflow problems, particularly in the underperforming GE Capital business. GE's power business was also said to be struggling more than Dray had expected.

Dray lowered his price target from $25 to $20 based on lower expected earnings per share in both 2018 and 2019. Dray lowered his 2018 expected EPS by 14% to $1.03.

The company has fallen 19.51% in the last month, and Dray said more declines are ahead for GE. Dray also said that if the comeback takes long enough, GE's plans could be further stalled by a future economic slowdown.

"Even with the shares having significantly underperformed this year, it is hard to see anything better than a Sector Perform return potential, and risk-reward looks balanced," Dray said.

The silver lining, for Dray, was that the plan for the company's turnaround was finally public. Even if it's not exactly what was expected, the company is no longer in limbo.

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