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Deutsche Bank slashed its General Electric price target to $7 a share on Friday, saying revenue for the conglomerate's struggling power business "remains flattish but does not continue to decline."
"We think the key debates can be boiled down to the trajectory of GE Industrial [free cash flow] and whether the company is headed for a liquidity crisis," Deutsche Bank analyst Nicole DeBlase said in a note to investors. The firm's base case assumes "an economic downturn does not happen" through the end of 2021, DeBlase said.
Even in Deutsche Bank's bear case, DeBlase said the firm does "not forsee a liquidity crisis."
GE shares fell 4.3 percent in trading.
The firm laid out "new detailed base and bear case" free cash flow analyses, DeBlase said, but Deutsche Bank will "ignore the bull case for now since it probably wouldn't be viewed as credible."
In Deutsche Bank's base case, or most likely, scenario, GE would see about 34 cents per share of free cash flow in 2019 and 25 cents per share in 2020. DeBlase said upside for GE under Deutsche Bank's base case comes down to: "Positive trends in the company's Power business, upside to debt reduction targets, improved margin dynamics in the company's renewable energy business, general economic strength."
DeBase said the firm sees "execution mishaps" from GE Chairman and CEO Larry Culp's strategy review as a key risk moving forward, as well as outside factors like an economic downturn or "geopolitical instability."
Deutsche Bank stuck to its hold rating on GE shares, saying the stock now has "limited downside." The firm's price target is a cut from the previous $11 a share.