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.
