By Christopher Hinton
General Electric Co.'s (GE) troubled industrial and financial
businesses are leading to a credit-rating cut, which will likely
force the conglomerate to reduce its dividend, JPMorgan said
Friday.
But until the Fairfield, Conn., company lowers its dividend, it
will be near impossible for it to restructure with a possible
spin-off of GE Capital, according to analyst Stephen Tusa said in a
note to investors.
"These events are necessary catalysts of change for a culture
that was built to manage earnings in a way that is clearly
unsustainable over the long term," Tusa wrote. "The bottom line is
that, with deteriorating fundamentals - clearly at [GE Capital] and
with industrial following - staying the course is a hurdle to
capitulation."
Adding, "Former [Chief Executive Jack] Welch built a culture of
earnings management that was unsustainable."
No one from GE was available to comment.
Tusa's analysis follow General Electric's bruising
fourth-quarter results posted two weeks ago, showing a 44% drop in
its net earnings on declines in its financial and consumer-product
businesses. That trend is expected to continue through 2009, and
the company said it would bulk up its cash reserve to weather the
challenge. .
GE is a member of the Dow 30 and is considered a bellwether for
the economy.
After falling earlier, GE shares on Friday posted a 3.5% gain to
$11.23. Since mid-September, the stock is off nearly 60% and is
trading at a 13-year low. Some analysts have said a slash to its
annual dividend has already been priced in.
JPMorgan maintained its neutral rating for GE stock, but lowered
its price target to $9 from $13, predicting double-digit earnings
decline through 2010 with a profit trough that year of 70 cents a
share.
Analysts polled by FactSet Research are looking for 2010
earnings of $1.30 a share, on average.
GE isn't the only member of the Dow Jones Industrial Average
where investors are nervous over the dividend. Pharmaceutical giant
Pfizer Corp. (PFE), Caterpillar Inc. (CAT), American Express Co.
(AXP), and Alcoa Inc. (AA), are all under the microscope. Citigroup
Inc. (C), Bank of America (BAC) and General Motors Corp. (GM) have
already reduced their dividends.
Elsewhere, GE Chairman and Chief Executive Jeff Immelt has been
included in President Barack Obama's new Economic Recovery Advisory
Board, headed by former Federal Reserve Chairman Paul Volcker.
The board also includes Caterpillar Inc. (CAT) CEO James
Owens.
-Christopher Hinton; 415-439-6400; AskNewswires@dowjones.com