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Why General Electric Stock Plunged ~7% Last Week

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GE stock fell

General Electric stock (GE) fell ~7% last week on growing concerns over its turnaround. The stock’s first major blow was on March 5 after the company’s CEO, Larry Culp, warned about negative industrial FCF (free cash flow) in 2019 due to its struggling power business.

During a webcast interview with JPMorgan Chase (JPM) analyst Stephen Tusa, Culp said that GE’s power business would likely struggle more in 2019 than in the previous year, which could put the industrial FCF in the negative territory, Reuters reported.

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During the event, Culp stated that he doesn’t want to hide the ongoing issues with GE’s power business unit. He said, “We’ll see that be a greater negative number in this year as we work through the restructuring, as we work through the runoff liabilities there and just the localization of timing around projects.” The company generated industrial FCF of $4.5 billion in 2018.

GE had another setback after Tusa on March 6 said that the stock has more downside risk. Tusa in a note to clients stated that his target price of $6 on the stock “looks generous” now, CNBC reported. He believes that although Culp has been making great efforts to strengthen the balance sheet, it will take a longer time to turn around the underperforming power division.

Disappointed investors

Investors had been optimistic about Culp’s accelerated actions to revive GE. The CEO had undertaken several efforts including lowering its stake in Baker Hughes (BHGE), revising the spin-merger terms with Wabtec, and the sale of BioPharma business to Danaher (DHR) to strengthen the balance sheet.

However, Culp’s latest forecasts on GE’s industrial FCF have disappointed investors significantly. It now seems that the industrial conglomerate’s (XLI) revival will take longer than investors and analysts expected earlier.

The stock lost 5% of its value on March 5 and then 8% more on March 6. However, a slight recovery on March 8 somewhat narrowed its loss. Last week, GE stock fell 6.7%, which has eroded over 25% of its YTD gain. The company’s stock was up 43% as of March 4. However, with the recent plunge, the stock’s YTD gain is at just 31.6%.

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