General Electric (GE) has a new strategic plan, but it’s unlikely to revive the slumping GE stock anytime soon, according to JPMorgan.
Last week, GE said it plans to shed its health care and Baker Hughes (BHGE) oilfield-services businesses over the next few years to reverse a profit slump. General Electric will focus on power, aviation and renewable energy instead.
“Perhaps not well understood is that 2019 is shaping up to be much like 2018,” JPMorgan analyst Steve Tusa wrote Monday, making note of “heavy restructuring and little relief” in GE’s core power business.
He reiterated a 2018 price target of 11.
Shares lost 2% to 13.34 on the stock market today. GE stock rose 7.8% on June 26 on the restructuring plan, but hit resistance at its 50-day line the following session and closed the week up 4.3%. Shares hit a nine-year low of 12.61 on June 21.
Dow Jones industrials United Technologies (UTX) and 3M (MMM) gave up 3 cents and 0.6%, respectively. Siemens (SIEGY) fell 0.3% and Honeywell (HON) eked out a 0.5% gain.
In 2019, JPMorgan estimates GE earnings per share and free cash flow/share at 40 cents and 33 cents, respectively.
Based on 2019 figures, “the stock is trading at 26 times price-to-earnings and a 3% FCF yield vs. the sector at 16.5x and (about) 6%,” with both representing premiums of more than 50%.
“Using sector average multiples, we see (about) 20% downside at current levels,” Tusa warned.
JPMorgan estimated the post-restructuring “RemainGE” dividend at 20 cents next year, assuming a payout ratio around 40%.
Tusa said June 26 that the prized GE dividend could be “materially” cut. General Electric said it expects to maintain its current dividend until the health care transaction is done, then “adjust” it to be in line with industrial peers. The health care spinoff will pay a separate dividend, in line with industry practices.
Still, the “aggregate” dividend is likely to be lower, GE has said.
The GE dividend is currently 48 cents per share annually, for a 3.5% yield.
General Electric responded to Tusa’s latest note by referring to company comments made June 26.
“GE will be a focused high-tech industrial company that will be easier for investors to follow and measure with a significantly improved balance sheet to support its remaining businesses,” it said while announcing the results of its yearlong portfolio review.