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- General Electric's price target was to $7 at Deutche Bank.
- The bank says it will ignore the bull case of the GE's free cash flow but doesn't foresee "a liquidity crisis" for the conglomerate.
- GE's management has sped up efforts to reduce debt by selling assets.
- Watch General Electric trade live.
General Electric tumbled Friday, down as much as 6.7% to $7.41 a share, after Deutsche Bank cut its price target to $7 from $11. The firm noted GE's struggling power business "remains flattish but does not continue to decline."
"We think the key debates can be boiled down to the trajectory of GE Industrial [free cash flow] and whether the company is headed for a liquidity crisis," said Deutsche Bank analyst Nicole DeBlase in a note distributed on Friday, according to CNBC.
The firm will ignore the bull case of the GE's free cash flow "since it probably wouldn't be viewed as credible," said DeBlase, adding that she sees "execution mishaps" from CEO Larry Culp's strategy review as a key risk moving forward, as well as outside factors like an economic downturn, or geopolitical instability.
Culp was appointed as GE's new CEO on October 1. At that time, management said the company would take a $23 billion goodwill writedown on its struggling power business, and that it remains committed to strengthening its balance sheet by ways which include deleveraging.
Shares rallied by more than 20% after Culp's promotion, as investors looked past the company's lagging power business, price-cost pressures compounded by US-China tariffs, and behind-schedule deliveries of its LEAP engine.
However, GE's stock has been under pressure recently, trading at post-financial crisis lows, after the conglomerate reported disappointing quarterly results, slashed its dividend to a penny, and said that the recent writedown of its power business was being investigated by federal regulators.
In order to increase investor confidence, GE management has been speeding up efforts to reduce debt by selling assets. Two weeks ago, GE announced plans to expedite efforts to sell a $4 billion stake in the oilfield-services provider Baker Hughes. Additionally, its finance arm, GE capital, sold a $1.5 billion healthcare equipment finance portfolio to US lender TIAA Bank.
With these efforts, there could be "positive trends in the company's Power business, upside to debt reduction targets, improved margin dynamics in the company's renewable energy business, general economic strength," making it unlikely that company will have "a liquidity crisis," DeBlase said.
By her calculation, in the most likely scenario, GE could see about $0.34 a share of free cash flow in 2019 and $0.25 in 2020.
GE was down 58% this year.
- Read more:
- GOLDMAN SACHS: GE Capital has a $20 billion funding gap that needs to be filled by 2020
- General Electric plunges to its lowest level since the financial crisis after JPMorgan slashes its price target
- General Electric spikes after announcing plans to speed up the sale of some of its $4 billion stake in oilfield-services provider Baker Hughes
