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GE stock sinks again as analysts sound more alarm bells

Bloomberg logoBloomberg 11/30/2018 Courtney Dentch and Esha Dey

General Electric shares sank after two analysts sounded more alarm bells around the company’s liquidity, and a report said former GE employees were being questioned by federal investigators about its troubled insurance business.

Deutsche Bank analyst Nicole DeBlase slashed her price target on the stock by more than a third amid continuing questions on the beleaguered multinational’s liquidity outlook. J.P. Morgan’s Stephen Tusa, a long-time bear on the company, said commentary from GE’s partner Safran SA supported his view that profit and cash flow growth at the aviation segment would be below consensus expectations.

The other blow came as the Wall Street Journal reported that several former GE employees have said the company’s insurance business failed to internally acknowledge worsening results over the years. The employees also said that they were interviewed by government lawyers.

Shares were down 5.8 percent after dropping as much as 6.4 percent earlier in the session. The stock has remained below $8 over the past two weeks, a level it last saw in March 2009 at the financial crisis market bottom.

General Electric’s 4.418% notes due in 2035, issued out of the GE Capital entity, also fell this morning and now trade at a spread of about 286 basis points above Treasuries, 12 basis points wider than where the bonds closed yesterday. The notes are the most active in the investment-grade bond market today.

In analyst DeBlase’s base case model, GE will likely be able to build up its balance sheet next year with cash flow from its industrial units to around 34 cents a share, assuming economic headwinds don’t worsen in the next three years and debt comes down, she said. Still, the scenario supports a lower price target on the stock, prompting a cut to $7.00 from $11.00, compared with the average of $11.38 according to data compiled by Bloomberg. She rates the stock a hold.

A more bearish case assumes earnings at the power unit continue to decline and GE’s other business units are hit by a modest downturn. DeBlase sees the industrial units facing a cash burn of about 21 cents per share next year. Yet she doesn’t see the company facing a liquidity crisis, “even in this drastic scenario.”

Related video: Jim Cramer on When Is the Right Time to Buy GE (provided by The Street)

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