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What the General Electric Downgrade Means for Mutual Fund Investors (GE)

Shauna O'Brien Jan 06, 2015



Inside the Analyst Move


According to analyst John G. Inch: "In our opinion, GE is on the right strategic track to create long-term shareholder value by continuing to focus on structural and operating cost reduction, shrinking GE Capital and improving overall efficiency. However, the merits of GE’s simplification and restructuring actions appear to be proportionately offsetting Capital downsizing and still challenged global power generation markets. Moreover, we now expect earnings headwinds from Capital to be greater than we previously modeled, while the collapse in energy prices seems likely to provide an incremental challenge to GE – both directly and indirectly.

“We believe that GE’s large and diversified portfolio, including a heavy portion of profits derived from contractual services and parts, provides for a greater defensive positioning compared with most multi-industry names. However, we believe GE’s size also restricts the company’s long-term relative growth rates given the higher revenue base from which to expand. While this challenge could be overcome by shrinking the (Industrial) base, this prospect seems doubtful in the foreseeable future.”


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