General Electric Company (NYSE: GE) is pursuing an aggressive asset sales plan to improve its balance sheet, focus its business and get its stock price back on track. Unfortunately for GE stock investors, UBS analyst Steven Winoker says GE stock will likely continue to struggle until the power market shows signs of improvement.
Winoker says a deteriorating power market has put GE in a tough position.
“While cost-out remains a primary focus for the business, the end markets are far from cooperative with regard to pricing, demand and competition – and if anything require even more aggressive cost reductions, forcing GE into a vicious cycle,” he says.
In the most recent quarter, GE’s power business orders were down 26 percent and power sales were down 18 percent. In addition, GE’s global large gas turbine market share has steadily declined from 47 percent in 1997 to just 11 percent as of 2017.
Winoker says the worst is yet to come for GE’s struggling power business, which is one of many problems that should keep investors away from GE stock for the time being.
“We believe GE continues to face challenges related to Power, tax, Capital, litigation, portfolio and cash headwinds/uncertainty,” he says.
GE said in June that it plans to divest its stake in Baker Hughes (BHGE) and spin-off its health care business as part of its restructuring plan. GE is also reportedly exploring the sale of its digital assets. The company plans to move forward with a much leaner GE focused on core businesses of jet engines, power plants and renewable energy.
The restructuring process has been a painful one for investors. GE stock is down 50 percent in the past year and was booted from the Dow Jones industrial average in June.
Bank of America analyst Andrew Obin says GE management is making the right moves for the long term, but there may be more pain for investors in the near term.
“We believe that GE has significant cost cutting opportunities under the new leadership,” Obin says. “However, we do not see the stock outperforming in the face of possible further negative earnings revisions.”
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