“Shocking” Earnings Miss By GE, Say Top Analysts

“The results I’m about to share with you are completely unacceptable,” General Electric’s (NYSE:GE) CEO John Flannery told investors on Friday, before revealing that Q3 earnings came in 20c below the 49c forecast . “Horrible” cash flow of $4.1 billion was down 78% year-on-year while 2017 cash flow guidance was cut almost in half.

“We are focusing heavily on the culture of the company,” Flannery said. “Things will not stay the same at GE.” Flannery plans to address in November whether the company will continue to pay out such a generous dividend (4.1% yield) but has commented that “there are no sacred cows.”

Indeed we can see that the news score for GE is Strong Negative. The news sentiment comes in at 22% bullish to 78% bearish, versus the average for the sector of 60% bullish to 40% bearish.

Following the news alert, we turned to top analysts for their reactionsw:

Gautam Khanna – Hold, $22 price target (-8% downside)

Cowen & Co analyst Gautam Khanna slashed his price target from $24 to $22 saying “Power drove a big Q3 FCF/EPS miss, C17 adj. EPS guide was pared to $1.05-1.10 vs. prior $1.60-1.70, and Industrial CFOA was pared to $7B vs. prior $12-14B+. We see a likely, sizable dividend cut and down C18 EPS, with limited bounce back prospects in C19. Thus, we’d avoid the stock.” He adds: “management finally acknowledged the obvious pressures in the Power market, and prospects for a recovery are far out in time” – and as a result it is very likely that power profits could decline sharply in 2018 and potentially even in 2019 as well. As he has only ever published hold ratings on GE stock Khanna has not gained or lost on GE so far.

John G Inch – Sell, $21 price target (-12% downside)

Top Deutsche Bank analyst John Inch calls General Electric’s weaker-than-expected Q3 results “shocking”. His calculations reveal that GE “falls well short” of generating sufficient cash to cover its $8B common dividend from operations. GE must now cut dividends and/or raise financial leverage to pay for the dividend. According to Inch, the drop in EPS to approx. $1.00 indicates a “sizable dividend cut is pending.” Post-report GE shares appear “that much more expensive” at a 22 times price-to-earnings ratio says Inch. Inch has a 63% success rate and 6.4% average return per rating on GE stock.