General Electric Will Need More Capital to Stay Competitive, Analyst Says

A Gordon Haskett analyst contends General Electric will need to look at an equity capital raise to ensure it has cash to invest in its operations.
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General Electric  (GE) - Get Report likely will need to raise capital, with the industrial giant's previously high-flying aviation unit taking a major hit as the coronavirus ravages the airline industry, according to a new analyst report.

While GE is not facing a near-term liquidity crunch, the combination of a cratering in demand for new jets by the airline industry, with the company's own rising pension obligations, means a "potential equity capital raise by GE is back on the table," noted John Inch, an analyst at Gordon Haskett.

The capital raise, in turn, could be crucial in protecting GE's ability over the longer-term "to tap sufficient funds to properly invest in its operations" and to pay down "more debt/rapidly rising long-term liabilities," Inch wrote.

The Gordon Haskett analyst has put a hold rating on GE's shares, with a price target of $11 a share, or more than 60% premium over its current trading price. 

Shares of GE rose 4.49% to $7.03 a share on Monday as the markets rallied to kick off the week. 

The airline industry has been one of the hardest hit by the pandemic, with jets "steadily being parked/coming off-line and capacity rapidly coming out of the system," noted the Gordon Haskett analyst.

GE aviation, which had already announced deep cuts, recently furloughed 50% of its staff.

GE also faces rising retirement costs, with falling interest rates taking their toll on the company's pension plan and likely requiring another $10 billion investment, if not more, according to Gordon Haskett's Inch.

In addition, GE's 36.8% stake in oil giant Baker Hughes has plunged by $6 billion over the past year as energy prices have plummeted.

Separately, analysts at J.P. Morgan slashed their revenue estimates for GE's aviation unit to $4.7 billion in 2020 and $5 billion in 2021, down from a base of $6.8 billion for 2019.

"The simple math around the moving parts suggests this is optimistic," analysts at J.P. Morgan wrote.