GE shares take the biggest drop in nearly a year as analyst day disappoints investors with high expectations

Shares in General Electric Co. sank again on Thursday, setting them up for the biggest drop in more than 11 months as analysts gave a mixed review of the analyst’s deal of the day and the industrial conglomerate’s GECAS.

GE stock,
fell 8.8% in afternoon trading, which would be the biggest day since they fell 11.3% on April 1, after falling 5.4% on Wednesday following the announcement of the deal and the event of analysts.

Since the stock closed at a nearly three-year high of $ 13.60 on March 8, it has now fallen 14.6% amid a three-day losing streak.

The extended sell-off of the stock comes after GE announced a $ 30 billion deal to combine its aircraft leasing business (GECAS) with AerCap Holdings NV AER.
+ 8.63%,
and surprisingly proposed a reverse 1-for-8 stock split. The company also said that the remainder of its GE Capital business, after the agreement with GECAS, would be incorporated into GE Industrial and provided updated financial guidance at its World Day event Analyst. Read more about GE’s moves on Wednesday.

Deutsche Bank analyst Nicole DeBlase raised her share price target to $ 14 from $ 13, amid an improved outlook for free cash flow (FCF) in 2022 and 2023 to match management’s guidance. It reiterated the retention rating it has had on the stock for at least the past two years, citing the lack of a rise in its target price.

Although DeBlase “didn’t find many surprises” in GE’s outlook for this year, he believes “positioning / expectations were a major component” of the stock’s subsequent trading action.

“GE has long been a consensus among hedge funds for several months now, and it remains a favorite way to gain exposure to ‘reopening’ trading, given the importance of the aviation business to both. [earnings per share] and FCF, ”DeBlase wrote in a note to clients.

After a record 73.4% quarterly increase in the fourth quarter, DeBlase said the stock had performed the best among its peer group this year, “so we don’t think expectations can be described as low before the event. “.

In addition to the valuation, he said he heard some other “not so positive” comments, including questions about the timing of the GECAS deal as it happened during the cycle, and that the deal was a “misleading” way to write off GECAS assets. .

FactSet, MarketWatch

Oppenheimer analyst Christopher Glynn said the agreement and guidance put GE on a “strong” footing as it improves capital efficiency and comes amid expectations that a “strong recovery” is underway. in aviation.

But Glynn also raised concerns about the valuation, as it downgraded GE to function, after outperforming since November, while eliminating its price target. He said his downgrade was based on valuation, given that the stock had exceeded its previous target price of $ 13.

Glynn wrote that “some substantial change execution and cyclical recovery” is already “valued at current levels,” but said the prolonged duration of the debt structure and strong liquidity now provide GE “with a backdrop to emerge. of the aviation recession in a position of resilience “.

Meanwhile, JP Morgan bear / skeptic Stephen Tusa reiterated the neutral rating he has had on GE for the past year, but said he still sees a “material disadvantage” for the stock, based on his $ 5 price target, which is 59% below the current one. levels.

Tusa said that while he agrees that a streamlined GE after the GECAS deal is positive, he said the deal and the financial outlook have just “crystallized” for him the “real bearish case” for equities.

Since GECAS is no longer in the picture, Tusa said there are no longer any GE Capital assets for Wall Street bulls to argue that there is enough value / equity to back the related debt.

“Simply put, with free money from the [COVID-19] Vaccine trade secretive, GE’s narrative as a trade gaining traction with a cash V shape and profits are being found in numbers showing sustained high leverage well above targets despite [more than] $ 70 billion in shares on top of fundamentals that we would characterize as mixed with expectations for future earnings that remain too high, “wrote Tusa.

However, UBS’s Markus Mittermaier was a bit more lenient as he reiterated the buy rating he has had on GE since December 2019 and his $ 15 share price target, implying a 24% gain over current levels.

He said that despite the short-term “bumps” from the FCF, the simplification after the GECAS deal is “a clear strategically positive”. He said that, in the very short term, he understands the “negative interpretation” of some of the elements of the agreement and the outlook, such as the impact in 2021 FCF to further reduce the factoring balance, as well as the increase in net debt to be incorporated. GE Capital on GE’s balance sheet.

“That said, this has not taken away the excess of future factoring developments, it further reduced the risk of the aggregate debt image that we believe will make investors increasingly willing to ‘subscribe’ to the emerging new GE, that should help multiples “Mittermaier wrote. “At the end of the day, we think [Wednesday] it was an important step towards creating a simpler GE with significantly fewer ‘legacy overhangs’ and improved strategic options in the medium and long term. “

GE shares have rallied 47.3% in the past 12 months, while SPDR Industrial Select Sector’s XLI exchange-traded fund,
+ 0.13%
has advanced 46.7% and the S&P 500 SPX index,
+ 1.09%
it has risen 44.0%.


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