General Electric (GE) has been a symbol of America’s strength. But over the past few years, the company has, instead, been a symbol of horrific management. What went wrong? Maybe the better question is what didn’t go wrong. From possible accounting irregularities, power business problems, ton of debt and GE’s weakening capital position driving forced asset sales and an ax to GE’s dividend, it has been a painful ride for investors in GE. With that said, Deutsche Bank analyst Nicole Deblase says she is laying out the “realistic bear case” for the stock.
“We have built up a detailed segment-by-segment bear case earnings model, which assumes continued declines at Power and modest downturns in Renewables, Aviation and O&G. We also assume a maximum cash outflow from contract assets and progress payments of $3bn and $2bn p.a., respectively, and that accounts receivable continue to increase as GE Capital is unwound and the Healthcare spin is consummated. These assumptions get us to $0.21/share cash burn in 2019e, $0.58/share in 2020e and $0.14 in 2021e, after accounting for lost cash flow of expected asset disposals. The good news is that even in this drastic scenario, we do not foresee a liquidity crisis; the GE Industrial cash balance (ex-overseas cash) would end 2021e at $5bn, in line with 3Q18 levels. However, given that cash is not building, net leverage would remain high in this scenario, at 3.5-4x throughout 2019-21e,” DeBlase says.
The analyst concludes by suggesting there’s a limited downside versus the current share price, which leads her to maintain a Hold rating, while bringing the price target down from $7.50 to $7.00 (To watch DeBlase’s track record, click here)
TipRanks analytics show analysts on Wall Street have mixed feelings on this stock. The consensus rating of Moderate Buy is made up by 7 bullish analysts, 8 who are sidelined and 2 who are bearish. The consensus price target of $11.64 is more ambitious than that of DeBlase’s. (See GE’s price targets and analyst ratings on TipRanks)