Morgan Stanley Talks GE Stock

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In a report published Wednesday, Morgan Stanley analysts maintained an Equal-Weight rating on
General Electric Co.
GE
, with a price target of $27. In the report, Morgan Stanley noted, "We have tweaked our GE model following the normal post-K maintenance review. Overall our estimates are unchanged, but the mix has altered somewhat. In a broad sense, a more conservative stab at our Oil & Gas assumptions was offset by lower corporate expenses." "Following an updated review of latest CapEx outlooks, pricing commentary and peer company guidance, we now model Oil & Gas segment income to decline 15% in 2015 (vs guidance of flat to down single digits) and now embed a peak to trough decline of 29% through 2017," the analysts wrote. Morgan Stanley added, "GE surprised us by aggressively lowering corporate expenses by $953m in 2014 to $2.4bn and has provided guidance for $2.3-2.5bn in 2015. We assume that corporate will continue to receive its fair share of restructuring and consistent with GE's 12% SG&A target, we see Corporate continuing to trend down towards the $2bn range by 2017." "A major factor in driving segment margin expansion is the growth in Service profitability, which expanded by 2ppts to 32% on a revenue base of $46bn…While applauding Service performance, it does highlight continued pressure on Equipment profitability," the analysts commented, while adding, "Nevertheless OE margin levels are too low and this can be a key earnings lever, although our sense is that 2015 will echo 2014, in this regard."
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Posted In: Analyst ColorReiterationAnalyst RatingsMorgan Stanley
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