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UBS analyst Damian Karas shares downgraded from
General Electric
at neutral, the
UBS
equivalent of a Hold, from Buy. In addition, he lowered his price target by about 12% to $ 11.50 per share.
Buying shares of General Electric (ticker: GE) has been a good choice up until now in 2019. Stocks have risen by almost 43% since the beginning of the year, far better than the 17% yield of the index.
Dow Jones Industrial Average
over the same period. In fact, it was the jump that led Karas to "pause" on the title.
He also has long-term concerns about the Chinese electricity market and the increased competition from GE's troubled power generator – a problem that was first raised at the group's conference. electrical products in May.
The story back. GE undertakes a major turnaround led by its new CEO Larry Culp. Under Culp, the company's chief executive, GE has improved its financial stability through the sale of assets. GE, for example, has sold part of its health care unit to
Danaher
(DHR) for more than 21 billion dollars in February.
Culp has also taken steps to reduce costs in the energy division. Total employment at GE Power decreased by 24,000 in 2018. This figure includes job cuts as well as asset sales.
What's up. GE's narrative goes from "survival to transformation over several years" and a history of transformation, writes Karas. At one point, he thinks that investors will not react to the announcement of the stabilization of the industrial conglomerate and he looks for the next catalyst to raise shares.
Of course, a catalyst could be simply the consistent execution of quarterly results and messaging. GE management has called 2019 a "reset year" and investors were encouraged during the company's first-quarter earnings call when GE met Wall Street's expectations for earnings and maintained its earnings guidance. results for the year. The stock jumped 4.5% the day he released the first quarter figures.
Look forward. Electricity markets have also been taken into account in the deterioration, but Karas seems undecided as to the future of power, noting some positive and negative factors that he sees.
On the one hand, the potential emergence of a Chinese power champion, an idea launched by GE's competitor
Siemens
(SIE.Germany) – could increase competition around the world. In theory, more competition would be bad for GE's market share and profitability.
On the other hand, Siemens plans to transform its power unit into a separate publicly traded entity. A step that changes its relationship with the Siemens financing unit, according to Karas. If this makes it more difficult to finance electrical equipment for Siemens, GE could gain an advantage by maintaining its own customer financing within GE Capital. This is a new idea proposed by UBS and has not been discussed yet.
Nevertheless, it is unlikely that investors will focus on Chinese power for several years. And investors expect the unit to generate much higher profits before the emergence of a Chinese energy market champion.
The GE stock recently fell by 1.1% to $ 10.26. The Dow, by comparison, was flat.
Write to Al Root at [email protected]
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