Will GE Stock be Affected by EU Warning on Alstom Unit Purchase?

NEW YORK (TheStreet) -- General Electric Co. (GE) is working to make concessions in order to counter European Union concerns that its bid for Alstom's (ALSMY) power segment could lower competition, Reuters reports. On Friday the conglomerate received an EU charge sheet regarding the company's largest deal.

Shares of GE are down by 0.56% to $27.35 in mid-day trading on Friday.

GE is planning a $14 billion purchase of Alstom's power unit as part of its industrial products expansion plan. However, the deal has ignited regulatory concerns that it would leave only two gas turbine companies in Europe, Reuters said.

GE believes it will be able to close the Alstom deal in the latter part of this year, despite the EU's concerns.

"The statement of objections is a standard part of the Phase II investigation process and does not prejudge the finale outcome of the procedure," GE told Reuters.

A charge sheet explains why the EU regulator believes a deal is anticompetitive, Reuters said, adding that issuing the sheet is a step away from the Commission rejecting the merger unless a company can alleviate concerns.

Separately, TheStreet Ratings team rates GENERAL ELECTRIC CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate GENERAL ELECTRIC CO (GE) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for GENERAL ELECTRIC CO is rather high; currently it is at 51.25%. It has increased from the same quarter the previous year.
  • Net operating cash flow has increased to $6,090.00 million or 22.75% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 7.72%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.7%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The debt-to-equity ratio is very high at 3.24 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Industrial Conglomerates industry and the overall market, GENERAL ELECTRIC CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: GE Ratings Report

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