So much for the new-CEO stock bump at General Electric Co.
Gone are the gains from last month’s announcement that Chief Executive Officer Jeffrey Immelt would step down, ending a 16-year tenure in which he failed to win over investors. Now JPMorgan Chase & Co. predicts the share slump could worsen as GE struggles with sluggish demand in markets from oil to health care.
“While we expect a fresh start, a positive, we don’t see a quick or easy fix to the current predicament,” Steve Tusa, an analyst at JPMorgan, said in a note to clients Thursday as he reduced his price target to $22 from $27. That’s the lowest of 21 estimates compiled by Bloomberg.
The report underscored the challenges for GE’s next CEO, John Flannery, as the company veteran prepares to take the reins in August. The company is already under pressure from shareholder Trian Fund Management amid weak earnings, cash-flow concerns, and a stock that has trailed the broader markets. GE may consider trimming buyback plans, cutting the 2018 outlook and undergoing more restructuring, Tusa said.
The shares fell 3.8 percent to $26.31 Thursday after dropping as much as 4.1 percent to the lowest intraday price since October 2015. GE hit $29 in the days after the CEO change was announced.
GE stuck by its expectations of $12 billion to $14 billion of cash flow from operations this year and stock repurchases of $11 billion to $13 billion. Additionally, “the GE dividend is safe,” the Boston-based company said in an e-mailed statement Thursday.
Not every analyst is down on the stock. Scott Davis of Barclays Plc recently made GE his “top pick,” saying the company will be helped by a simpler portfolio, larger cost cuts, and improving cash flow. He has a price target of $36 a share, the highest among estimates compiled by Bloomberg.
While GE has good individual business units, the company is facing weakness in many of its end markets, Tusa said. Following a series of portfolio changes in recent years, GE has bet on industries such as aviation and energy while tilting away from the finance and consumer markets that once underpinned its operations.
Flannery may reset expectations and lower next year’s profit forecast, particularly after what could be a “relatively weak” second-quarter report, Tusa said. While the dividend isn’t likely to be cut, GE may trim the stock buyback effort to free up cash, the analyst said. Tusa’s price cut came after Deutsche Bank AG in May recommended selling GE shares.