General Electric (GE) filed its 2017 10-K with the Securities and Exchange Commission after the close Friday, and its contents have helped knock its shares down to a new 52-week low
General Electric’s filing included changes to its board, revelations about an investigation into subprime mortgage loans made before the financial crisis, and how it would restate its earnings from 2016 and 2017 for new accounting rules. And after a first read of the document, Vertical Research Partners’ Jeff Sprague writes that the troubled industrial giant is still in a “precarious and uncertain financial situation.” In a previous note, Sprague warned that the recent market selloff still didn’t create GE buying opportunity.
Sprague reiterated a Hold rating on GE today, writing that it faces a “litany of liabilities,” and near- and long-term demands on its liquidity. He estimate that GE Industrial’s leverage is at 3.2 times his 2018 earnings before interest, taxes, depreciation and amortization estimate, and that General Electric Capital Corporation may not be able to fully fund its legacy liabilities without support from GE.
He’s not fully convinced that GE can log the $6 billion to $7 billion in free cash flow it’s targeting this year, at least not without more clarification from the company, and notes that while its pension position improved, the stock’s decline means that its 2017 deficit now stands at a “whopping” 27% of GE’s market cap.
Industrial stock have been rallying this year, but not General Electric: Its shares have dropped 19% this year following an abysmal 2017 performance, even as the Industrial Select Sector SPDR ETF (XLI) has gained 3.2%. And at least some firms are betting that the stock’s worst days are behind it, while others are still dumping the shares. In our Feb. 17 issue, Barron’s Andrew Bary took a deep dive into General Electric and warned that “the stock isn’t a bargain and could drop another 10% or more.”
Shares of General Electric have fallen 2% to $14.20 at 12:03 p.m., what would be a new 52-week low. The Industrial Select Sector SPDR ETF has risen 0.5% to $78.08.