GE Investors Are Happy About the New CEO. Here’s What Analysts Are Saying

(Bloomberg) -- General Electric Co. gained the most in over nine years after the industrial manufacturer named a highly respected industry veteran as its new CEO on Monday, rekindling investors’ hopes for a successful turnaround of the struggling behemoth. Wall Street analysts applauded the move, but noted that GE’s troubles are not “easily or quickly fixable.”

GE shares jumped as much as 16 percent, but later pared some of the gains to trade up 7.8 percent at 2:10 p.m. in New York.

Here’s a round up of the analyst commentary following the news of CEO change and Power business charge.

JPMorgan, Stephen Tusa

(Underweight, price target $10)
“While the change in leadership brings the company a step closer to where it ultimately needs to go for a real reset, the reset itself, and how potentially bad it actually is, is still in front of them (no financial details here), including a likely dividend cut and potential equity raise.”

“The change supports our view that the near-term earnings and free cash flow at GE may be tracking worse than standing expectations.”

“We believe the implication is that numbers could be cut materially when third-quarter results are released later this month, perhaps even prior.”

“The significant goodwill write down suggests that the Power business and its cash flow are not coming back any time soon, and ratings agencies have been clear that if this were the case, they would downgrade.”

Deutsche Bank, Nicole DeBlase

“We aren’t completely sure it is possible to change the narrative around the story, even with the help of a superstar CEO.”

“We know that a $23 billion goodwill impairment could call the company’s credit rating into question - which could necessitate another (larger-than-expected) dividend cut, and also sends a clear message about just how much value was destroyed via the Alstom acquisition.”

“We now forecast a 22 percent organic revenue decline in Power in second-half of 2018.”

Citi, Andrew Kaplowitz

“We look at today’s announcement as a new beginning.”

“Management change we think is bigger and more forward looking than the $23 billion non-cash impairment the company will take on its Power business and commentary that it will fall short of previous free cash flow and EPS guidance for 2018.”

Cowen, Gautam Khanna

(Market perform, price target $14.50)

“Investors will view the change favorably given Culp’s successful CEO tenure at Danaher, his GE ‘outsider’ status, and the fact that Culp doesn’t ‘need’ the position, having already completed a lucrative & reputable career.”

“The challenges that GE faces (high leverage; Power’s cyclical, structural and operational challenges; etc) are not easily or quickly fixable.”

“Under Culp, investors may be willing to look further out to assess what GE may be worth post the planned portfolio moves, which may sustain the bounce in the stock that we expect today.”

BofAML, Andrew Obin

(Neutral, price target $14 from $16)

“Uncertainty regarding near-term EPS and capital structure profile offsets long-term upside from turnaround under new CEO Larry Culp.”

“We see GE taking additional steps to protect its credit rating due to lower Power
profitability and cash flow. We see a significant cut to dividend earlier than previously
expected.”

“We will have to see the magnitude of Power profit reset to quantify the risk of a capital raise but note that elimination of dividend frees up $4 billion/year.”

“Third-quarter likely a ‘hard’ EPS reset.”

UBS, Steven Winoker

(Neutral, price target $13)
GE’s “press release signals kitchen-sink is coming.”

“We believe the language writing down all of Power’s goodwill and recognizing both
cash and EPS shortfalls set the stage for re-baselining the company, dividend policy and
capital deployment again, with the note that an update is coming in the earnings call.”

“A new CEO might not change the facts of the current headwinds, but as we have
noted many times, it is hard to refute Larry Culp’s track record and accomplishments at
Danaher during his tenure.”

Barclays, Julian Mitchell

(Equal weight, price target $16)

“The root of the removal is not a shock since the power news flow has been dreadful for some time and the Board has clearly lost confidence in the current turnaround underway in Power.”

“Given the amount of portfolio change at the company and the prospect for further shifts in light of this news, one drawback is that shareholders do not know exactly what they will be owning in a year or two, but this factor has not stopped investors from trusting in portfolio changes at DHR and FTV.”

“We are not sure if this news implies a radically different strategic plan than the one announced in June, given Mr. Culp’s involvement at the time. However, we would expect another ‘strategic review’ meeting in addition to third-quarter earnings, potentially by year-end.”

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Morwenna Coniam, Scott Schnipper

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