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General Electric has little equity value, analyst says

General Electric stockholders exit stake on bleak fundamentals

General Electric stock (NYSE: GE) price lost more than 40% of value since the beginning of this year as the businesses of industrial and power companies are hit harder by the pandemic. Slower economic growth across the world is among the biggest factor behind the poor stock price performance.

The coronavirus related disruptions have also significantly impacted GE’s restructuring program. JPMorgan analyst Stephen Tusa has provided a price target of $5, with a Neutral rating – saying GE enterprise value hints there is “little equity value.”   

“Unlike peers, GE continues to have no official guidance, which in our view implies difficulty seeing 3-6 months out, while debt maturities and options resets suggest GE does not see normal until ’24,” Stephen Tusa says.

General Electric exposure towards the aviation industry is likely to put pressure on financial numbers for a longer time. Its revenue from the aviation segment came in at $4.38 billion, representing a staggering drop of 44% from the past year period. In addition, aviation orders plunged 55% during the second quarter as airline companies have been struggling amid low air travel demand.

GE General Electric Company daily Stock Chart
General Electric stock performance. Finviz chart

“While it’s too early to predict the trajectory for the recovery of commercial aviation, we continue to plan for a prolonged return to prior levels of activity,” CEO Larry Culp declared. “We expect to return to positive Industrial free cash flow in 2021.”

The company has also missed its cash generation targets amid pandemic. GE has generated an industrial free cash flow loss of $2.1 billion in the second quarter. Its second-quarter revenue plunged 36% year over year while the loss per share stood around $0.15.

Although the company didn’t provide second half guidance, the market analysts expect headwinds for its aviation and industrial business. The airline industry is likely to take a longer time for complete stabilization because of travel restrictions and social distancing policies. On the other hand, the performance of the industrial segment depends mostly on economic recovery.  

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