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Avoid General Electric shares because its dividend is not 'safe': Cowen

  • Cowen also predicts General Electric will report earnings below expectations for its first quarter.
  • "We don't believe the $0.48/year dividend is safe unless 'contract assets' convert to cash on a net basis, and/or the Power market rebounds sharply and soon," the firm says.
John Flannery, chief executive officer of GE.
Christopher Goodney | Bloomberg | Getty Images
John Flannery, chief executive officer of GE.

There will be no turnaround for General Electric shareholders any time soon as the company's financial difficulties will get worse, according to one Wall Street firm.

Cowen slashed its price target to $12 from $15 for GE shares, predicting the company will report first-quarter earnings below expectations. The firm also reaffirmed its market perform rating for GE.

"We expect the upcoming accounting restatement and Q1 print to continue to pressure this 'show me' stock," analyst Gautam Khanna wrote in a note to clients Wednesday. "We don't believe the $0.48/year dividend is safe unless 'contract assets' convert to cash on a net basis, and/or the Power market rebounds sharply and soon."

The company's shares fell 0.6 percent Wednesday after the report. GE shares significantly underperformed the market over the previous year. The stock declined 57 percent in the past 12 months through Tuesday versus the S&P 500's 13 percent return.

GE announced last week it plans to restate its results for 2016 and 2017 to reflect a new accounting standard. The analyst said the restatement could hurt the company's ability to raise new capital.

"In theory [the restatement] is a benign event (i.e. simply a restate of historicals; 2018 guide not impacted; etc.), but it may be a negative if it raises GE's cost to borrow," he wrote. "GE will remain reliant on short term credit markets in 2018, which makes the restatement, and any related borrowing cost impact, worthy of monitoring."

GE is slated to report its first-quarter 2018 financial results on April 20.

Khanna estimates the company will report first-quarter earnings-per-share ex-restructuring and pension expenses of 8 cents versus the Wall Street consensus of 12 cents.

The company did not immediately respond to a request for comment.