What happened
Shares of General Electric (GE +3.37%) were down 5.3% as of 2:45 p.m. EDT Friday, a day when everything seemed to be down, including the S&P 500 Index, which was off 2.8%.
And there were specific reasons for GE stock being down nearly twice the S&P.
Image source: Getty Images.
So what
First, there was the news that President Trump is brewing up a new trade war with China, blaming that country for the COVID-19 pandemic that has claimed tens of thousands of U.S. lives already. He is threatening retaliations that may include anything from tariffs to lawsuits, The Washington Post reported.
Trade wars aren't good for big companies with large international businesses. GE, which gets 59% of its revenue from outside the U.S., according to S&P Global Market Intelligence, could be especially vulnerable to renewed trade tensions between the U.S. and China.
A second problem facing the stock today includes a pair of stock reports out of Wall Street's investment banks. In one, Credit Suisse lowered its price target on GE to $8 a share this morning, TheFly.com reports. In addition to sales lost from a "muted" air travel industry, the investment bank said, the coronavirus is also weighing on GE's healthcare, power, and capital divisions, which combined represent about half GE's annual revenue.
In another report, analysts at William Blair commented that COVID-10 "dropped a dump truck of lemons" all over CEO Larry Culp's attempts to turn around the company. In Blair's view, GE's business won't start recovering before late this year, or even 2021. In the meantime, the report said, the next couple of quarters could feature materially weaker guidance from the company, weighing on the prospects for the stock.
Now what
Although at first glance William Blair's comments sound pessimistic, in fact this analyst is optimistic about GE and expects the stock to outperform the market over the next 12 to 18 months. It cited a slew of worries, including delays in Boeing's 737 MAX returning to service, depressing demand for GE jet engines, and advances in battery technology that could reduce demand for its generators. But Blair nonetheless sees GE shares as substantially undervalued at their current price of $6 and change.
In fact, the analyst thinks that if investors are patient, they could see GE stock rise over the next three years to $13, or even $20 per share.
