General Electric took their deepest dive in six years on Monday on a series of bearish research notes from analysts reacting to the industrial conglomerate’s third-quarter earnings miss on Friday and outlook for 2017.
Investors reacted on Monday, sending the company shares falling more than 6 percent to $22.32. GE reflects an approximate 29.4% decline year-to-date (YTD) versus the SP 500’s 14.6% increase over the same period.
The largest US manufacturing group reported third-quarter adjusted earnings of 29 cents per share on Friday, well below analysts’ estimate of 50 cents per share.
GE’s newly instated Chief Executive Officer John Flannery, who took over for Jeffrey Immelt in August following pressure from activist investors, called the company’s results “completely unacceptable” and promised to consider all options in efforts to reverse one of GE’s greatest tumbles in its 125-year history.
The firm's September quarter profits were hit by restructuring costs and weak performance from its power and oil and gas businesses. It was the company's first earnings report under CEO John Flannery.
Unexpectedly, shares didn't open at $21.50. GE stock actually turned positive by the end of Friday's session, closing near $24. On Monday, General Electric is trading about 3.5% lower, to $23, as investors try to process the company's results.
Plenty of analysts have come out with new price targets, ratings, and dividend forecasts as they've had the weekend to work out the details on GE.
Analysts at Morgan Stanley and UBS cut their ratings on GE stock, stressing a probable dividend cut at the company’s Nov. 13 analyst meeting, which the investment firm does not view as currently priced into shares.The company has a 4.2 percent dividend yield.
“We believe investors need to take action to protect against the possibility of near-term underperformance in the event of a dividend cut in November and this is clearly an additional factor in our rating change,” wrote Morgan Stanley’s Nigel Coe, also noting to downside from GE’s struggling power-equipment unit.
The analyst dropped his rating on GE to underweight from equal weight and cut his price target from $25 to $22.
UBS analysts echoed the casual sentiment in a note to clients, writing that GE’s 88% earnings payout rate for its dividend will probably be reduced.
"Management is very focused on cash now, which means lower cape, likely better working capital, but some of the same market-related challenges," UBS analyst Christopher Belfiore wrote in a note to clients Friday.
"We could see a scenario where management takes the opportunity to reset the dividend to a reasonable and sustainable payout ratio (40-50%). If they maintain the high dividend, we are concerned about under-investment relative to competitors even as they tighten execution."
UBS reduced its rating on the company to neutral from buy and lowered its price target to $24 from $31.
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