GE investors get a reality check as critics see rough road

A gas turbine at the General Electric energy plant in Greenville, South Carolina. (Bloomberg pic)

NEW YORK: A pair of General Electric Co.’s most prominent critics is reminding investors that solving all of the company’s problems won’t be as simple as appointing a new CEO.

The downtrodden manufacturer is weighed down by a deteriorating finance business and doesn’t have enough assets or cash-flow to pay down its liabilities, according to Steve Tusa, a JPMorgan Chase & Co. analyst and longtime GE bear. The comments came in a note Friday as another analyst, Gordon Haskett’s John Inch, initiated GE coverage by telling investors to sell the shares.

The opinions throw cold water on a brief rally earlier this month after GE named Larry Culp, a respected industrial executive, to replace Chief Executive Officer John Flannery. The shakeup was designed to accelerate efforts to reverse one of the deepest slides in GE’s 126-year history.

GE fell 3.6% to US$12.26 a share at 2.08 pm in New York. The shares fell 27% this year through Thursday, despite gaining 13% since Culp was named CEO on Oct. 1.

The turbulence was underscored Friday when GE said it would delay its third-quarter earnings report by five days to Oct 30 to give Culp more time to assess the company. After wrapping up site visits, he’ll share “initial observations” in the upcoming earnings call and give a more detailed breakdown early next year, GE said in a statement.

GE is facing a range of problems, including a slumping market for power equipment, investigations by the US Securities and Exchange Commission and severe cash-flow challenges. The issues are exacerbated by a recent credit-rating downgrade that adds to GE’s cost of capital, said Tusa. The difficulty of fixing the balance sheet, he said, is “among the most challenging company-specific issues we have ever seen.”

Inch, who previously followed GE as an analyst with Deutsche Bank, started coverage at Gordon Haskett with an “underperform” rating and a price target of US$11 a share. The challenges facing the company may take years to work out, he said.