General Electric Company (NYSE: GE ) CEO John Flannery and the rest of the management team are doing everything they can to trim the fat at GE, including selling non-core assets and streamlining the business. Unfortunately for GE investors, analysts say GE's turnaround plan may be too little, too late to save the stock from another major dividend cut.

GE stock tanked after the company cut its dividend by 50 percent in November in an effort to shore up its troubled balance sheet. However, in April, Moody's Investor Service said GE is at risk of a second credit downgrade in six months if it doesn't demonstrate "meaningful improvements" in its free cash flow or show that its Power business has stabilized.

[See: 7 Stocks That Soar in a Recession .]

Flannery has said GE plans to cut $20 billion in assets from its bloated balance sheet in coming years, but GE stock added to its 2018 losses last month when Flannery was non-committal about another dividend cut. At an industry conference, Flannery said GE will have to see how his plan plays out before making a decision about another dividend cut. GE stock dropped 7 percent on the day of Flannery's comments, its worst single day of trading since 2009.

Now J.P. Morgan analyst Stephen Tusa says another GE dividend cut appears to be inevitable. "The bottom line is that we see the need to de-risk substantially, which includes the need for cash and a cut to the dividend to help with operational de-levering," Tusay says.

Tusa says the company has very little room for error in its turnaround plan, and investors are running out of patience with the poorly performing stock. Tusa says Flannery should consider presenting a new, clear, long-term plan to investors that could potentially start with monetizing GE's stake in Baker Hughes GE ( BHGE ) for roughly $20 billion. Tusa says even a $20 billion cash infusion from Baker Hughes wouldn't be enough to get GE on firm financial footing.

"It would still leave the need for another $10 billion in debt reduction to get to ratings agencies' targets, which we consider a 'minimum," Tusa says.

[See: 9 Dividend Aristocrats for Stable Income .]

GE stock is down 20.7 percent in 2018 and 50.6 percent in the past year. Tusa says there is even more downside to come.

J.P. Morgan has an "underweight" rating and $11 price target for GE stock .

Compare Offers

Compare Offers

Raymond Mitchell, Author

Post a Comment