General Electric Co. (GE) shares slipped lower Wednesday to a low of $12.24, after the investment bank UBS cut its price target for the group over concerns for profitability in its struggling power division.
UBS analyst Steven Winoker lowered his target for GE to $13 from $16, and maintained a 'neutral' rating on the stock, amid concerns for the division, whose turnaround was described as the "biggest challenge" for the company by new CEO John Flannery. Winoker said weaker end markets for the group's power division could accelerate cost cuts, "forcing GE into a vicious cycle" that would further damage profits. GE Power orders fell 26% in the three months ending in June to $7.366 billion, the company reported, while division revenues were 19% lower at $7.6 billion and segment profits plunged 28% to $421 million.
"The market continues to be difficult with softness in orders putting pressure on our cash flow and working capital," Flannery told investors on July 20. "The team continues to focus on rightsizing footprint, reducing base cost, improving quality, and maximizing value of our installed base. This transformation is taking place in the context of a very dynamic macro environment."
GE shares were marked 2.13% lower in early Wednesday trading and changing hands at $12.40 each, a move that extends the stock's year-to-date decline to just under 16%.
Late last month, analysts at JPMorgan noted that "increased competition and lower demand for turbines and power plants" were creating a "prisoner's dilemma" for GE, where the company either "walks from business, turning up the heat on the melting ice cube, or cuts price to maintain the installed base, slowing the speed of the secular decline, while they figure out a strategy forward."
GE, which was turfed from the Dow Jones Industrial Average by S&P Dow Jones Indices in favor of the Walgreens Boots Alliance Inc (WBA) has been attempting to streamline is myriad business under Flannery's leadership for several months, announcing plans in late June to spin off its healthcare division and sell its stake in oil services group Baker Hughes (BHGE)
GE said the plans, which follow its ongoing strategic review, will mark a shift in focus towards its power, aviation and renewable-energy businesses and create "a simpler, stronger, leading high-tech Industrial company".
https://www.thestreet.com/markets/ge-slips-lower-after-ubs-price-cut-linked-to-struggling-power-division-14702180