BOSTON, Feb 6 (Reuters) - If General Electric Co GE.N loses its coveted triple-A credit rating, which many on Wall Street regard as likely, its $1.24-per-share annual dividend may be next to go, a J.P. Morgan analyst suggested on Friday.
In a note to clients, Stephen Tusa said he regarded the loss of the U.S. conglomerate’s AAA debt ratings from Standard & Poor’s and Moody’s Investors Service to be “nearly a foregone conclusion.”
Moody’s last month joined S&P in putting GE’s credit ratings on review. A downgrade could make it more difficult and costly for its GE Capital finance unit to borrow money.
Fairfield, Connecticut-based GE has repeatedly stated its commitment to keeping both, and Chief Executive Jeff Immelt said in New York on Thursday that the world’s largest maker of jet engines and electricity-producing turbines had ample cash flow to pay the dividend. He declined to comment on whether he has considered the benefits of cutting that payout.
But Tusa said it may be time for GE to reconsider.
“We think that this is another losing battle for GE in 2009, and quite frankly, one that is just not worth fighting,” he wrote, saying the company might earn better long-term returns by using that cash to make acquisitions at a time when share prices around the world have been battered down.
Fundamental pressure continues to mount on GE’S earnings stream, both at GE Capital and at its industrial businesses, said Tusa, who cut his price target on the stock to $9 from $13.
Tusa said the rating loss and dividend cut could be a catalyst for change, possibly including a portfolio restructuring. He kept his “neutral” rating on the stock.
GE is one of just five nonfinancial U.S. companies to get top ratings from both S&P and Moody's. The others are Johnson & Johnson JNJ.N, Exxon Mobil Corp XOM.N, Microsoft Corp MSFT.O and Automatic Data Processing Inc ADP.O.
GE shares were down 5 cents to $10.80 in early trading on the New York Stock Exchange. (Reporting by Scott Malone, additional reporting by Amulya Nagaraj in Bangalore, editing by Dave Zimmerman)
Our Standards: The Thomson Reuters Trust Principles.