General Electric's new CEO should 'put a floor in the stock,' RBC says

Wikimedia CommonsA General Electric sign lights up at night.
  • General Electric announced Monday that CEO John Flannery would be replaced by current board member and former Danaher CEO Lawrence Culp, Jr.
  • Culp is a catalyst for GE’s operational improvements and should “put a floor in the stock,” RBC says.
  • Last week, RBC warned investors were sceptical of GE’s incremental bad news, such as its lagging power business.
  • Watch General Electric trade in real time here.

General Electric‘s new CEO is a catalyst for operational improvements and should “put a floor in the stock,” RBC says.

The company announced Monday that CEO John Flannery would be removed from his role after 14 months on the job, and that current GE board member and former Danaher CEO Lawrence Culp, Jr., would replace him. GE shares surged more than 13% on the news, signalling market confidence in the change of leadership.

“We have known Mr. Culp for over 15 years and have deep respect for his leadership and relentless focus on operating excellence and accountability,” a team of RBC analysts led by Deane Dray said in a note sent out to clients on Tuesday.

“Investor confidence in Larry Culp’s strategic vision and operating excellence should put a floor in the stock.”

Last week, Dray warned that GE stock hadn’t bottomed yet, and that investors were sceptical of the company’s ability to hit its full-year earnings per share guidance of $US1.00-1.07 as the company’s lagging power business, price-cost pressures compounded by US-China tariffs, and behind-schedule deliveries of its LEAP engine weighed.

And on Monday, GE let all the bad news out. It announced a $US23 billion goodwill charge for its power business, and said free cash flow and earnings estimates for fiscal-year 2018 will likely miss their targets.

Encouraged by the reveal, Dray raised his price target to $US15 from $US13 and upgraded the stock to “outperform.”

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.