Stock Spotlight: Why General Electric (GE) hit 10-Year Low

Over the last year, General Electric (GE) has become a slow-motion train-wreck.

In November 2018, its stock was just a shell of its former self.  And while there are those that would attempt to catch the falling knife, many be left cut and bloody. 

Unfortunately, upside is limited until a number of issues are addressed and fixed properly.

GE Dividend Cut to a Penny

For those that lived on General Electric’s dividends, the latest cut doesn’t sit well with them. 

Unfortunately, it didn’t appear that CEO Larry Culp’s had much of a choice when he cut the dividend to just a penny. 

"When we announced on our earnings conference call that we were taking our dividend down, we didn't do anything positive for our retail shareholder base and they have been exiting the stock, I think, as a result," Culp told CNBC.

This was the second cut in a year – a dramatic move by the CEO to free up cash for the beleaguered company.  Once held in high regard for its sizable payouts, it’s now forced to make the cut to retain $3.9 billion in cash for the year.  For those hoping for a revived dividend, near-term, don’t hold your breath.  Cutting its debt is more important.    


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GE’s Financial Condition is on Life Support

Worse, the company recently reported adjusted third quarter EPS of 14 cents a share – six cents below Street expectations. Revenue fell 4% to $29.57 billion, which was also less than expected. On a GAAP basis, the company lost $2.63 a share in the quarter.

On top of that, many of its businesses have contracting revenues.  Power revenues for example fell 33% to $5.7 billion. Transportation fell 2% to $900 million. Lighting tell 18%. While its aviation business saw a 12% jump in revenue to $7.5 billion with a 22% profit margin, that’s not enough to offset the negatives of its other businesses. 

The company is also sitting on $100 billion in liabilities with no enterprise free cash flow, note analysts, even after the dividend cut.

Things went from bad to worse after Culp also noted the company’s power business was “getting close” to a bottom, indicating that problems will persist. Then again, that’s not a shock when that business is seeing dropping global demand and turbine blade failures. That’s on top of a disclosed criminal probe into GE accounting.

“We do not think the businesses are fundamentally broken. However, modeling an appropriate near-term trough has proven difficult,” Credit Suisse analyst John Walsh said, as quoted by The Wall Street Journal. He added “poor visibility into fundamentals coupled with uncertainty around liabilities keep us sidelined.”

Until there are improvements, it’s tough to fall in love with a falling knife.

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