What happened
Shares of General Electric (GE 1.05%) continue to be volatile. After popping last week following the company's agreement to sell its biopharma unit to Danaher, the stock has been giving back those gains over the past two days. Shares of the industrial giant were down by around 8% at 12:30 p.m. EST on Wednesday. Driving the recent downdraft were comments by CEO Larry Culp that the company would face "significant" cash flow headwinds in 2019.
So what
This outlook has analysts growing more concerned about the company's future. An analyst at J.P. Morgan put out a note following Culp's comments, stating that the negative free cash flow announcement was worse than the bank's view. Furthermore, he still sees the company's balance sheet as a work in progress and believes that the turnaround in the troubled power business is going to take longer than many bulls realize. The analyst now thinks his $6 price target on the stock -- which is already 33% below the current price -- "looks generous."
Check out the latest earnings call transcript for General Electric.
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Several other analysts expressed their disappointment with GE's guidance. CFRA, for example, said that the outlook shows that "demand for GE's [power] turbines is half what the company forecast two years ago, and this is likely to persist into 2020." Meanwhile, a Bloomberg analyst wrote, "Given that Culp spelled out most of the 2019 cash-flow headwinds on the earnings call, I find it hard to believe that he didn't know then that it would be negative," and that she "understand[s] the reluctance to give bad news, but in holding back, GE has allowed investors' expectations to get ahead of reality." Finally, an analyst at Gordon Haskett commented that "the risk of additional debt ratings downgrades has now increased," in light of the negative view on cash flow.
Now what
GE is still in the early stages of trying to turn around its troubled operations. While the company has made notable progress on shoring up its balance sheet with the pending sale of its biopharma unit, its power business hasn't yet turned the corner. Shares of the industrial giant will likely remain volatile until there are clear signs that its power unit is back on track and its finances are on solid ground.
