The drop for the industrial conglomerate, which makes jet engines, railroad locomotives, water treatment plants, household appliances and owns NBC television, came as JPMorgan's C. Stephen Tusa Jr. cut GE to "neutral" from "overweight."
"Despite a valuation that now discounts bad news and an attractive story for the patient, long-term buyer, we can no longer recommend GE," Tusa wrote in a note to investors.
GE spokesman Russell Wilkerson said the company does not comment on analyst notes.
Tusa predicted difficulties for Fairfield-based GE's operations, particularly slower sales for its aviation unit amid capacity cuts at U.S. airlines. He also predicted lower income from GE's real estate operations on challenges in the real estate market.
In addition, the analyst saw struggles for NBC Universal on weaker advertising sales, while its industrial segment could also see slower sales.
Still, Tusa said the company continues to have attractive assets and talented management that could move the company forward if it were restructured properly.
He said GE must be more transparent with Wall Street to increase its stock price, particularly after GE shocked analysts and shareholders in April by missing its earnings target and reporting a 6 percent drop in first-quarter earnings to $4.3 billion. GE lowered its 2008 outlook for earnings from $2.42 to between $2.20 and $2.30 per share.
That triggered a sell-off that wiped out more than $46 billion of GE's market capitalization and prompted CEO Jeff Immelt to announce weekly reviews of all GE businesses to make forecasts more accurate.
"Based on recent developments, it would appear as though accountability for hitting targets is the top priority, and some managers might be chasing earnings," Tusa wrote to investors. "We also think the high bar for success in such a competitive environment could create a scenario in which bad news is not tolerated, making necessary communication with senior level managers a challenge until it's too late to fix."
Tusa lowered his 2009 earnings outlook to $2.30 per share from $2.42. Analysts polled by Thomson Financial expect earnings of $2.44 per share.
The first-quarter earnings put additional pressure on GE to continue exiting slower growth and more volatile businesses. The company, which has already sold its insurance and plastics businesses, announced last month that it will sell or spin off its appliance business, which has been hurt by the U.S. economic downturn.
Another analyst, Nicholas Heymann of Sterne Agee, maintained GE's stock rating as a hold Monday.
"While GE originally hoped that it would be able to move through its portfolio changes in 2008 and 2009 and still sustain double-digit earnings growth, a more challenging and highly volatile global economy has now made that far more remote," Heymann wrote.
"As events unfold regarding the reshaping of GE's portfolio, we believe investor confidence in the company's ability to return to double-digit earnings growth is likely to gradually rebound."
