While the pension freeze helps cut some of GE's debt, J.P. Morgan analyst Stephen Tusa expects the company will need to take further steps if it is going to reduce its leverage, maintaining his Underweight rating on the stock with a $5 price target.
"Ultimately, we see more cuts to consensus and additional resources as needed to truly 'normalize' the balance sheet," Tusa wrote today.
"It's notable that today's moves and $4B-$5B of cash contributions merely offset the $7B increase in added liability since [year-end 2018], so really do not represent any progress vs. where it stood" at year-end '18, Tusa wrote, adding that "we understand rates are outside of the company's control, but that is the point - it's a risk that is a known unknown and... a key consideration to investing."
Tusa also thinks investors should watch how GE accounts for any tax benefits related to the pension freeze.
Last year, GE "adjusted gross pension out of [free cash flow], and left the $1B-plus tax benefit in, and adjusting both this year will be a marked step forward from a credibility perspective as a needed departure from the past. If not, we would question whether anything has changed," Tusa said.
Now read: GE: Game Over »
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