After the unexpected departure of long-time CEO Jeff Immelt earlier this month, the outlook for General Electric Co. (GE) has become increasingly murky. GE may struggle to present a compelling long-term case for investors throughout the rest of the year, J.P. Morgan analyst Stephen Tusa Jr. says.
GE comfortably topped Wall Street’s expectations with big earnings and revenue beats in the first quarter of 2017. Nevertheless, incoming CEO John Flannery, former head of GE Healthcare, must address several issues throughout the second half of the year. Tusa says the news will be bad for investors.
First, an earnings guidance cut is likely on the table for GE. In April, GE reiterated previous 2017 full-year earnings-per-share guidance of $1.60 to $1.70, but J.P. Morgan has lowered its 2017 EPS estimate from $1.60 to $1.57. The firm also reduced its 2018 EPS estimate from $1.80 to $1.50, suggesting earnings will decline next year. By 2020, J.P. Morgan projects GE EPS will reach just $1.75.
In addition to the potential for a significant earnings guidance cut, GE may soon announce a major corporate restructuring effort, a reduction to its share buyback program and even adjustments to its investment priorities and strategic vision, Tusa says.
GE has slowly worked itself into its current predicament over time, he says.
“Put simply, poorly timed investments to catch up to emerging markets and ultimately optimistic growth assumptions for resource-rich countries, along with a corporate imperative for market share, has left the company with structural overcapacity,” Tusa says. “While we expect a fresh start – a positive – we don’t see a quick or easy fix to the current predicament.”
If J.P. Morgan’s predictions are correct, investors aren’t likely to favor the changes coming from GE. Shares declined…
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