On Monday morning, General Electric Company (NYSE: GE) announced it is replacing its CEO, taking a $23 billion charge related to its power business and cutting its full-year earnings guidance. Investors took GE’s transparency and…
On Monday morning, General Electric Company (NYSE: GE) announced it is replacing its CEO, taking a $23 billion charge related to its power business and cutting its full-year earnings guidance. Investors took GE’s transparency and aggressive management change as good news, but analysts say the company will have to demonstrate that its new strategies can stabilize or grow profits before the stock is safe for long-term investors.
After only about a year on the job, GE announced CEO John Flannery is stepping down and will be replaced by former Danaher Corp. CEO Lawrence Culp. GE stock dropped 59.6 percent since Flannery was named CEO of GE last June, but they gained more than 11 percent on Monday morning on optimism about the Culp era.
In addition to the leadership change, the company said GE Power’s goodwill balance is $23 billion and that investors will get an update on the potential impairment charge in the company’s upcoming third-quarter earnings report. GE previously took a $6.2 billion impairment charge in the fourth quarter of 2017 related to its struggling finance unit.
GE investors have been through the ringer in the past two years, suffering major declines in share price, a wave of analyst and credit rating downgrades, aggressive earnings and guidance cuts, and multiple leadership transitions. The company’s most recent issues stem from a major failure in one of its turbines at the Colorado Bend power plant last month.
On Monday, GE also confirmed that the company’s previous full-year guidance is too ambitious given the difficult power environment.
“While GE’s businesses other than Power are generally performing consistently with previous guidance, due to weaker performance in the GE Power business, the company will fall short of previously indicated guidance for free cash flow and EPS for 2018,” GE says in a statement.
The positive market reaction suggests investors may finally believe expectations have bottomed for GE stock, but Bank of America analyst Robert Ohmes says GE will need to prove to investors that there will be no more guidance cuts before the stock becomes a safe investment.
“We believe that GE has significant cost cutting opportunities under the new leadership,” Ohmes says. “However, we do not see the stock outperforming in the face of possible further negative earnings revisions.”
Bank of America has a “neutral” rating and $16 price target for GE stock.