Here's what major Wall Street analysts think of General Electric's sudden CEO change
- Wall Street is stunned after General Electric's board of directors replaces John Flannery as chief executive with former Danaher CEO Lawrence Culp.
- The stock, which S&P Dow Jones Indices removed from the Dow Jones Industrial Average in June, rallies more than 9 percent Monday following news of Culp's ascent.
Wall Street is stunned after General Electric's board of directors replaced John Flannery as chief executive with former Danaher CEO Lawrence Culp on Monday.
Flannery, who took the reins at GE in August 2017, was brought in to help turn around the struggling industrial conglomerate after a 16-year tenure by Jeff Immelt.
Though Wall Street first applauded Flannery's move to embark on a deep dive into the company's businesses and finances at the start of his term, the board eventually grew unsatisfied with the pace of his execution.
Culp is expected to continue the spinoff of GE's health-care segment following a similar strategy in its railroad business.
General Electric's shares, once a longtime favorite for an attractive dividend, have lost nearly half of their value over the past year despite management's efforts.
The stock, which S&P Dow Jones Indices removed from the Dow Jones Industrial Average in June, rallied more than 7 percent Monday following news of Culp's ascent.
Analysts across the Street issued their own assessments of the move Monday morning. Here are a few of their thoughts:
UBS (Neutral)
"A new CEO might not change the facts of the current headwinds, but as we have noted many times, it is hard to refute Larry Culp's track record and accomplishments at Danaher during his tenure. High performance culture, execution and strategy were hallmarks of the company. Of course, GE is in a very different starting position than Danaher at the time with GE's Power, balance sheet and cash challenges. However, we believe that CEO Culp will, at a minimum, re-baseline the company, drive execution and make long-term decisions that benefit the company and shareholders." — Steven Winoker
Goldman Sachs (Neutral)
"With the stock up materially, it appears that investors consider the announcement to be a positive, given GE's execution challenges (e.g., weak cash flow generation, over-levered balance sheet, Capital charges, etc.). The timing of this announcement comes as a surprise to us (i.e., earlier than expected) as Mr. Larry Culp was just appointed to the Chairman of the Board position in April." — Joe Ritchie
Cowen (Market Perform)
"GE should be commended for selecting a credible, seasoned GE outsider as Chairman/CEO who is likely to more candidly and quickly identify how bad things may be and what needs to be done about it. This may limit the seemingly perpetual investor fear of 'what shoe will drop next' at GE, as negative estimate revisions have been a constant feature of GE for years irrespective of the firm's leadership (Immelt, Flannery). Thus, under Culp, investors may be willing to look further out to assess what GE may be worth post the planned portfolio moves." — Gautam Khanna
J.P. Morgan (Underweight)
"The appointment of ex-DHR CEO and current lead director of GE's Board Larry Culp as the new CEO of GE was not out of the realm of potential outcomes and positive for future investor confidence, in our view, though the timing and format of this announcement is a negative surprise and supports our thesis. While our PT is $10, without further information, we believe our downside case has more merit - we continue to see ~$0.50 of FCF as the anchor to value on which the stock is expensive at 4% yield and ~10% premium EV/FCF." — Stephen Tusa
CFRA (Hold)
"Investors grew impatient with the lack of improvement and with the sheer scale of the problems uncovered; however, these problems were not created under [Flannery's] tenure. The market seems to be welcoming a change in leadership but the new CEO will be facing many of the same problems Mr. Flannery faced. Amid a week power business, asset write-downs and a lack of visibility into ongoing EPS or cash flows, we think a change in leadership is not enough to recommend the stock. Under Mr. Culp's leadership, Danaher saw strong growth in revenues and EPS, and hopefully he can right the ship at GE." — Jim Corridore
Morningstar (4/5 stars)
"We did not foresee this. The board reportedly expressed frustration over the slow pace of change at GE Power, a sentiment we share. We believe the power market still faces severe secular threats from renewables and overcapacity, so we would expect far more cost-out actions. That said, whether it's Culp or anyone else at the helm, GE will need time to turn the segment around, and we expect a long road to recovery. We do not foresee a recovery in revenue at GE Power until 2022 (from 2017 levels), and unlike management's prior guidance, we model only a 3-point margin recovery at the segment profit level (to 8.6%, as opposed to the 10% management guided to)." — Joshua Aguilar
— CNBC's Michael Bloom contributed reporting.