• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

GE's Tough Turnaround Ahead Gives Investors Pause Amid Short-Term Spike

GE's remaining obstacles are stopping investors from getting too excited about the buying opportunity amid the CEO shakeup.
By KEVIN CURRAN Oct 01, 2018 | 04:13 PM EDT
Stocks quotes in this article: GE, HON, UTX, DHR

General Electric Co.  (GE) still has much to prove to investors despite Monday's share price spike.

GE stock rose over 13% in early morning hours before paring those gains back to 7% as of the market close in New York.

All of this is coming on the back of Larry Culp's accession to the role of CEO. He takes the place of short-time CEO John Flannery who had been often criticized for the execution of his turnaround.

Better Bets

"The change in CEO today was definitely unexpected and it's moving the share price today, but it's not changing our timeline on the turnaround," Andrew Shoemaker, research associate at Capital Estate Advisors, a New York-based RIA that manages an undisclosed amount of shares in GE, told Real Money.

He said that beyond the headlines Monday, the turnaround will still take a few years.

"We think a turnaround is possible and can be executed," he explained. "But the news today doesn't change our timeline for the turnaround which we've charted to the timeframe of 2023 or 2024."

He said his firm is holding on to their shares until the turnaround takes a clearer picture.

Shoemaker noted that his firm remains concerned with the impact that credit ratings agencies could bring to the share price given the large amount of debt the company holds.

Much like James "Rev Shark" DePorre wrote in his column today, Shoemaker feels there are better opportunities out there for eager industrials investors.

"There are still a lot of risks there," he said. "Honeywell Inc. (HON) and United Technologies Corporation (UTX) are much better options in the space for buying opportunities in our opinion."

Dividend Drag

Adding to some concern for investors is the issue of the company's dividend. Analysts have zeroed in on the dividend as a possible casualty of the management shift.

" (DHR) 's dividend payout ratio had been minimal over [Culp's] time, with businesses that generated plenty of cash," J.P. Morgan wrote in a company note today. "We believe this means a likely material dividend cut as well."

A potential dividend cut would likely be tied to making sure that the company maintains its A2 credit rating, which is vital for the debt-wracked company.

"The significant goodwill write down suggests that the Power business and its cash flow are not coming back any time soon," J.P. Morgan pointed out. "Ratings agencies have been clear that if this were the case, they would downgrade."

Thus J.P. Morgan maintained an "underweight" rating and a $10 price target given the threat, which is imminent in the firm's view.

Bulls Still Building Their Case

To be sure, bulls still remain, which is indicated in market sentiment as well.

Gabelli & Company's research analyst and portfolio manager Justin Bergner was one such bull that took time to speak to Real Money.

"I like this stock," he said bluntly. "I think it trades at a severe discount to private market value and could get close to $20 by year end 2019 in my view."

He said that the assets the company holds and their value outweighs the concerns over credit ratings, which he was confident could be resolved, and the major write down in GE Power, which Bergner believes is already priced into the share price.

"There is tremendous value in the assets that the company holds, given what it trades at," he explained. "I think healthcare and automotive alone would be worth $12 per share."

Wait and See

The divergent opinions on GE are indicative of just what a surprise this announcement was and how much information is still needed.

"[There are] still more unknowns than knowns with respect to outlook," Deutsche Bank concluded in its report today. "We await more information on the earnings per share and free cash flow trajectory and execution focus before re-evaluating our view."

The firm issued a "hold" rating on the stock given the environment and a price target of $13.

Given the waning trade volume in the latter half of the day and the corresponding paring of gains to about half of their initial jump, the market may be cooling off to wait as well.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Investing | Stocks

More from Stocks

Market Limps Into the Green

James "Rev Shark" DePorre
Sep 25, 2023 4:23 PM EDT

We saw a better try at an oversold bounce on Monday, but lots of new lows, including Pfizer, United Parcel Service, Target, and General Mills.

Doug Kass: My Real Money Pal Just Picked Berkshire for Q4. I Disagree

Doug Kass
Sep 25, 2023 2:34 PM EDT

Here's why I'm shorting the very stock that Stephen 'Sarge' Guilfoyle picked as his stock for the remainder of the year.

As the Market Struggles to Bounce, I'm Watching These 7 Stocks

James "Rev Shark" DePorre
Sep 25, 2023 11:27 AM EDT

Let's look at the names I'm eyeing, including my pick of the week.

Brace Yourself as Higher Rates Start to Take Their Toll

Bret Jensen
Sep 25, 2023 11:00 AM EDT

Homebuilders and owners of commercial real estate in particular are feeling the rate-induced pain, and it likely will intensify in the months ahead.

After All This Time, Now We Fear the Fed? Really?

Peter Tchir
Sep 25, 2023 9:39 AM EDT

I'm the most bullish I have been on risk and rates since earlier this year when we were looking for a short squeeze.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:20 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Trading in Multiple Time Frames
  • 10:24 AM EDT BRUCE KAMICH

    This Could Get Messy

    A number of key stocks are getting close to import...
  • 01:41 PM EDT CHRIS VERSACE

    Latest AAP Podcast With Helene Meisler!

    Listen in as the Action Alerts PLUS podcast talks ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login