General Electric stock (GE) is down another 3% to a 6.5-year low of $16.05. Investors price in another General Electric stock dividend cut and remain unconvinced a break-up will yield any incremental value for General Electric stock holders.

Sitfel’s Robert McCarthy yesterday added his voice to that contingent, assigning zero value to GE Capital in light of “seemingly permanent” suspension of dividends as it funds another $15B of reserves over the next five years.

He figures fair value for General Electric stock of about $18 per share, other see fair value of $16 for General Electric stock:

2017 was not a good year for General Electric and its shareholders. Free cash flow fell widely short of expectations, and the industrial company cut its dividend in half in order to rectify its poor cash flow situation.

As a result, General Electric stock has been the poorest performer in Dow Jones Industrial Average. While the DJIA marched on to all-time highs in January and just reached above 26,000 for the first time in history, General Electric’s shares slumped again.

General Electric stock dropped almost five percent yesterday as investors digested speculation about a break-up as a solution to save General Electric.

A General Electric stock turnaround has a lot of facets, and the market is speculating about the timing of its turnaround. Some analysts believe it could be at least two years before the company’s financials could solidify.

Others believe that the worst is over and that GE stock is poised for improvement in 2018.

On January 8, 2018, J.P. Morgan (JPM) analyst C. Stephen Tusa cut his 12-month price target to $16.00 per share from $17.00 per share. In a client note, he wrote that GE’s free cash flow “can grow meaningfully from here banks on working capital remaining positive…, restructuring collapsing…, and an opaque, negative ‘other account,’ including contract assets, getting significantly less negative.”

Christopher Glynn, managing director and senior analyst at Oppenheimer, reiterated his “underperform” rating on GE stock. Glynn expects the recently passed tax reform bill to play a slightly negative role for GE. He noted that the company’s effective tax rate could see a marginal increase due to a variety of restructuring expenses incurred by the company.

Glynn noted that a slightly higher effective tax rate could act as a headwind for the stock’s upside and that the extent of its Power segment’s underperformance is a key factor. The direction of the Aviation and Healthcare segments could also play a major role in deciding GE’s near-term stock price.

Rampant speculation about GE’s future path is unlikely to do the share price any good over the short haul. Investors need to brace themselves for new 52-week lows.

 

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