General Electric's problems are going from bad to worse

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GE shares drop on turbine problems

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General Electric confirmed this week that it has had a major failure in one of its turbines at the Colorado Bend power plant. While GE is downplaying the impact of the issue, GE investors and analysts are losing patience with the struggling stock.

J.P. Morgan analyst Stephen Tusa says it's unclear just how big of a deal the failure is at this point. Regardless, Tusa says GE can't afford more blows to its battered reputation, and the failure will negatively impact its power segment business in the near term.

General Electric says the failure was an "oxidation issue," and the company is working on running the turbines utilizing the same blade with additional maintenance runs.

After reaching out to industry experts, Tusa says one channel participant said a breakdown after less than 10,000 hours resulting in a plant shutdown suggests the issue is worse than GE is acknowledging.

The power segment has been an albatross for GE as of late. Power business orders were down 26 percent in the most recent quarter, and power sales were down 18 percent. GE stock has followed suit, declining 47.8 percent in the past year.

A difficult power market has been partly to blame for GE's woes, but Tusa says the turbine problem suggests GE Power may have some long-term problems.

"We believe there should no longer be any doubt that GE Power has company-specific issues, not only due to the decline in the profit pool from its large installed base of services, but now around the H-frame technology and potentially on the profitability of the related future services stream that is key to replacing the one currently running down," Tusa says. 

In light of the turbine incident, J.P. Morgan has reiterated its "underperform" rating and lowered its price target for GE stock from $11 to $10.