General Electric responded Friday to questions about the company’s financial situation raised by J.P. Morgan analyst Stephen Tusa.
GE said it “is a fundamentally strong company with a sound liquidity position. We are taking aggressive action to strengthen our balance sheet through accelerated deleveraging and position our businesses for success.”
Shares of GE plunged 8.9 percent in morning trading, dropping below $9 a share for the first time since the financial crisis.
GE’s third-quarter earnings were worse than expected “on almost all fronts,” Tusa said in a report Friday, adding that while the company’s liquidity issues are “certainly debatable, we believe this is not really about liquidity, it’s about a deterioration in run rate fundamentals.”
Tusa’s analysis of GE’s balance sheet is “overblown,” a company person with deep knowledge of its financial situation told CNBC’s Morgan Brennan. GE’s actions to sell off more than $20 billion in assets have provided the company with $10 billion in cash, according to the person. The company has “substantial sources to de-lever,” the person told CNBC, through the separation of health care and the sale of its transportation assets.
The J.P. Morgan analyst gave a bleak outlook for GE’s future profits. Tusa expects six of GE’s eight reporting segments to no longer be profitable by 2020, a sharp drop from when all eight “were profitable even 2 years ago,” he said. GE’s restructuring is “far from a ‘kitchen sink'” situation, where all the company’s bad news comes out at once, Tusa said.
He also expressed skepticism about the company’s rebuilding efforts. Tusa said GE’s third-quarter results “appear to go against the notion that there is ‘lots of restructuring’ going on here.”
“While the stock is down ~70% from the peak of $30, this move still does not sufficiently reflect the fundamental facts, in our view,” Tusa said.