Pair of an­a­lysts of­fer warn­ings about trou­bled GE

Houston Chronicle - - BUSINESS - By Richard Clough

A pair of Gen­eral Elec­tric Co.’s most prom­i­nent crit­ics are re­mind­ing in­vestors that solv­ing all 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 this month af­ter GE named Larry Culp, a re­spected in­dus­trial ex­ec­u­tive, to re­place CEO John Flan­nery. The shake-up was de­signed to ac­cel­er­ate ef­forts to re­verse one of the deep­est slides in GE’s 126-year his­tory.

GE fell 0.4 per­cent to $12.66 a share at 11:06 a.m. in New York. The shares had fallen 27 per­cent this year through Thurs­day, de­spite gain­ing 13 per­cent since Culp was named CEO on Oct. 1.

The tur­bu­lence was un­der­scored Fri­day when GE said it would de­lay its thirdquar­ter 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 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, Tusa said. 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 $11 a share. The chal­lenges fac­ing the com­pany may take years to work out, he said.

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