Things have been going from bad to worse for General Electric (GE) in the past few years and this year was no exception. The last surviving member of the original Dow Jones Industrial Average, who was the worst performer last year, was kicked out of the benchmark this year.
Though the company fired its CEO John Flannery only a year into his appointment citing slow progress in turnaround measures, things are hardly looking any better under the new chief Larry Culp Jr.
Hurt by weakness in the Power unit and a cash-chowing finance arm, General Electric is now solely supported on the back of its strong Aviation business. However, Aviation is a sector that is cyclic in nature, not dependable throughout the year.
Separately, most of GE’s aviation clients are from the Middle East. The rising volatility in this region and the cold war amongst countries including Saudi Arabia, Iran, and Qatar, is likely to hamper demand for air travel in the region, in turn hurting GE.
With the Finance arm continuing to eat into the company’s cash reserves, the company was forced to cut its dividend for the second time in less than 12 months in October to 1 cent. In such a grounded situation, the company sees expenses on research & development as a luxury rather than a necessity.
Investors have been pretty worried by this kind of approach taken by the once most innovative and profitable firm in America.
GE stock has fallen 62% so far this year. However, the stock has a 12-month price target of $11.64, suggesting a 70% upside from the current trading price, as some analysts expect the decluttering of the firm to bear results in the long term.
Justin Bergner of Gabelli has the highest price target on GE of $21 with a BUY rating. Meanwhile, Stephen Tusa of JPMorgan is the biggest bear with a price target of $6 and recommending SELL.
Earlier this year, we had advised investors to remain cautious on GE stock and to keep a close watch on it. We would recommend that investors continue to do that, expect that the prospects of a turnaround look worse than what it was last year.