Shares of embattled industrial giant General Electric (GE) continue to drop amid rapidly growing pessimism on Wall Street. Today, Goldman Sachs analyst Joe Ritchie slashed his price target on GE to $9.00 (from $12.00), while reiterating a Neutral rating. (To watch Ritchie’s track record, click here)
Ritchie, who’s been ahead of the GE story for some time now, believes there could be further headwinds facing GE Capital. The analyst points out that concerns around equity infusion remain a key overhang. With that said, how much of an equity infusion is needed at GE Capital?
“At this point, capital needs are uncertain, with limited visibility adding to concerns. The bulls are arguing that there are matched assets and liabilities on the Capital balance sheet while the bears believe that the assets are over-stated and/or liabilities understated […] The bottom line is we estimate there is a ~$20bn gap in Capital funding through 2020 that will be looked to be filled via Capital asset sales as well as an equity infusion from the Parent (note that GE Capital expects earnings to be $0 through 2020 ). Our analysis presumes a < 4x debt/equity ratio by 2020 is still the benchmark to maintain GE’s current credit ratings and that WMC is reserved within $1-$2bn of the potential expected liability. Importantly, we don’t assume any additional equity needed for the changes in insurance accounting in 2021 nor do we try to estimate future cash needs resulting from the disclosed DoJ/SEC investigation or other unknown tail risk (e.g., increase to the stat insurance reserve, impairments to assets in run off),” Ritchie opined.
Net-net, the battle seems to be torn between the bulls and fence sitters. Based on 17 analysts polled by TipRanks in the last 3 months, 7 rate a Buy on General Electric stock, 8 issue a Hold, while only 1 recommends a Sell. With a return potential of nearly 55%, the stock’s consensus target price stands at $12.40. (See GE’s price targets and analyst ratings on TipRanks)