General Electric responded Friday to questions about the company’s financial situation raised by J.P. Morgan analyst Stephen Tusa.
GE said the idea “will be a fundamentally strong company which has a sound liquidity position. We are taking aggressive action to strengthen our balance sheet through accelerated deleveraging in addition to position our businesses for success.”
Shares of GE closed down 5.7 percent at $8.58 a share in Friday trading. The stock plunged as far as $8.15 a share earlier from the day, hitting the lowest level in nearly a decade.
GE’s third-quarter earnings were worse than expected “on almost all fronts,” Tusa said in a report Friday, adding which while the company’s liquidity issues are “certainly debatable, we believe This kind of will be not genuinely about liquidity, the idea’s about a deterioration in run rate fundamentals.”
Tusa’s analysis of GE’s balance sheet will be “overblown,” a company person with deep knowledge of its financial situation told CNBC’s Morgan Brennan. GE’s actions to sell off more than $20 billion in assets have provided the company with $10 billion in cash, according to the person. The company has “substantial sources to de-lever,” the person told CNBC, through the separation of health care in addition to the sale of its transportation assets.
The J.P. Morgan analyst gave a bleak outlook for GE’s future profits. Tusa expects six of GE’s eight reporting segments to no longer be profitable by 2020, a sharp drop through when all eight “were profitable even 2 years ago,” he said. GE’s restructuring will be “far through a ‘kitchen sink'” situation, where all the company’s bad news comes out at once, Tusa said.
He also expressed skepticism about the company’s rebuilding efforts. Tusa said GE’s third-quarter results “appear to go against the notion which there will be ‘lots of restructuring’ going on here.”
“While the stock will be down ~70% through the peak of $30, This kind of move still does not sufficiently reflect the fundamental facts, in our view,” Tusa said.
WATCH:Three experts on GE’s future after firing CEO John Flannery