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General Electric Co. shares tumbled on Monday after UBS gave up its bullish position, citing significant equity outperformance in the face of continued weakness in the electricity market and a sharp drop in interest rates .
Analyst Damian Karas has reduced his rating to neutral, having been on the purchase since October 31, 2018. He lowered his stock price target to $ 11.50, or about 12% more than his current level of $ 13.
Industrial conglomerate stock
GE, -1.54%
fell by 1.1% in morning trading and headed for the seventh retreat of the last nine sessions. But the stock was still up 41% year-to-date, compared to 21% for the SPDR Industrial Select Sector.
XLI, -0.41%
the 20% gain of the S & P 500 index
SPX, -0.09%
and the Dow Jones Industrial Average
DJIA, -0.05%
Advance of 17%.
"A lot of the risk is now embedded in the price and we think that the action will take a relative break until we get more clarity on individual assets," Karas wrote in a note to customers.
Karas said the "noticeable decline" in interest rates this year had a negative impact on the balance sheet and valuation of about $ 1 per share. In addition, he stated that GE continues to face challenges related to its energy, debt, GE Capital operations, litigation and significant issues such as land of Boeing society.
BA, -0.89%
737 airplanes max. GE supplies the engines for these aircraft.
In GE's after-profit conference call with analysts, chief executive Larry Culp said the 737 Max's grounding was a "new risk" for the company, according to a transcript provided by FactSet. Learn more about GE's benefits.
10-year Treasury Bill yield
TMUBMUSD10Y, -1.36%
fell nearly 60 basis points (0.60 percentage point) to 2.101% on Monday. And the Federal Reserve should broadly lower its overnight interest rate target by 25 basis points this month, or even 50 basis points. See the bond report.
Do not miss: Should investors prepare for a shock and fear campaign from the Fed?
GE is expected to release its second quarter results on July 31 before the market opens.
Karas said that concerns about the "bottomless financial pit" have been largely resolved and that he expects management to "make the right decisions" to meet its challenges, but that will take time and the assessment is now "balanced" given its outperformance compared to peers and the broader stock market.
"The market has gone from bearish scenarios such as insolvency, but we also believe that investors remain largely cautious given [the] recovery over several years and problems, "wrote Karas.
Read also: GE is planning to repair the financial arm – but begins by looking to the engine, says CEO Culp.
The stock has risen 60% since closing to $ 5.40 on March 5, 2018, its lowest level in 9½ years, but was still down 23% in the last 12 months.
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