Shares of General Electric could be due for a boost, according to UBS analyst Shannon O’Callaghan, who says CEO Jeff Immelt has “added incentive” to cut costs.
GE outlined some changes to its incentive structure for top executives in an 8K filing on March 22, following discussions with Trian Fund Management, the investment firm that purchased a $US2.5 billion stake in the industrial company in October 2015.
In a note to clients sent out on March 23, O’Callaghan said the discussions led to “added incentives for management to hit” its operation profit and structural cost targets. GE set an industrial profit target of $US17.2 billion, and is hoping for a $US1 billion reduction in structural costs in 2017, and a further $US1 billion in 2018.
“These changes after Trian discussions included added incentive for CEO Jeff Immelt and his direct reports to hit these targets as bonuses will be increased 20% if they hit both the industrial OP and structural cost targets and will be reduced by 20% if they miss both,” O’Callaghan wrote.
“We think this addresses the critique that GE reached its 2016 [earnings per share] guidance through help from taxes and share buyback despite missing its 2016 industrial profit target,” she added.
The bank has a 12-month buy rating and a price target of $US35 per share, above its current price of $US29.53 per share. Shares of GE are down 6.4% so far in 2017.