Wednesday, January 21, 2009

General Electic (NYSE:GE): ’09 Expectations Still Too High; Placing Short-Term Sell Rating on the shares - UBS

UBS is out negative on General Electic (NYSE:GE) saying ’09 Expectations Still Too High; Placing Short-Term Sell Rating on the shares; lowering tgt to $12 from $18.

Believe reserves are too low and ’09 credit losses will exceed guidance
USB is reducing their ‘09 estimates for Capital Finance to break-even vs. GE’s guidance of roughly $5B (prior UBSe ~$3.2B). They believe GECS reserves are too low, and expect credit losses to far exceed GE’s forecast. Firm views GE’s guidance of $5B in Capital Finance earnings as a nearly “best case” scenario.

Credit rating and dividend at risk, and could drive stock lower
If their estimates are correct, UBS believes that GE’s ‘AAA’ rating is at risk, and that GE might have to consider either cutting its dividend or raising additional capital. They also believe that GE’s commitment to its dividend could result in underinvestment in its industrial businesses. Despite a sharp drop in the stock’s price over the last week, they expect declining consensus estimates, coupled with an intensification of the discussion about the dividend and credit rating, to drive the stock lower over the next few months.

Reducing earnings estimates, primarily to reflect weaker GECS outlook
New EPS estimate for 2009 is $1.05 (was $1.40) and for 2010 is $1.40 (was $1.50)

Notablecalls: It looks like UBS' 09 EPS of $1.05 is the new Street low (prev. $1.20). Also, their $12 tgt is the Street low.

The call reads ugly, but one must admit the stuff discussed here is not new in nature. There has already been ample discussion regarding GE's credit rating and dividend.

I would not be surprised to see the stock trade down on this, though.

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