JP Morgan is out with a MAJOR NEGATIVE call on General Electric (NYSE:GE):
- Cutting estimates. 2009 goes to $1.20 from $1.45 (now ~$0.37 below Street), with 2010 to $1.10 from $1.30 (now ~$0.55 below Street).
- Negative: 4Q a miss. The $0.50-0.52 excludes a $1.0-1.4 B after-tax charge, part of which is provisioning (~$600 mm). GE gets a pass on restructuring, but provisions are a part of doing business and inclusion in the number brings us to ~$0.44-0.46.
- Management reaffirmed the dividend, as expected; however, this appears to assume the business trends are steady state or that the company will find other significant sources of cash flow. As per our estimate, we see the potential for the business to decline over next year or two. This means that the company will need to fill a hole with working capital or "other" both sources of cash that we view as unsustainable, assuming that GECS remains as challenged as we think it will Current cash flow estimates indicate that 2009 should be safe (and even if a GECS infusion were to occur, it would still leave $10B cash from the recent equity offering), but we remain cautious on the company’s ability to sustain the dividend in 2010.
Initiates $13 price tgt for GE!
Notablecalls: GE will get whacked, I suspect.