General Electric Plans To Cease Making Coal Power Plants; Shares Drop 8%

General Electric announced plans to cease making coal-fired power plants to focus on its core renewable energy and power generation businesses. The stock dropped almost 8% on Monday.

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General Electric (GE) said the exit from its steam power business may include divestitures, site closings, job cuts and other considerations for publicly held subsidiaries. At the same the company committed to work with customers on current obligations as it pursues the exit.

The exit is part of GE’s strategy to invest in its core renewable energy generation businesses, and to make electricity more affordable, reliable, accessible, and sustainable. However, GE steam power will continue to deliver turbine islands for the nuclear market and service existing nuclear and coal power plants.

“With the continued transformation of GE, we are focused on power generation businesses that have attractive economics and a growth trajectory,” said GE’s Russell Stokes. “As we pursue this exit from the new build coal power market, we will continue to support our customers, helping them to keep their existing plants running in a cost-effective and efficient way with best-in-class technology and service expertise.”

Last week GE’s CEO Larry Culp disclosed that he expects to see positive industrial free cash flow (FCF) in the second half of 2020. In addition, the company is making “good progress” in reducing costs by $2 billion and generating cash savings of $3 billion to cope with the coronavirus pandemic, Culp said.

Following the comments, RBC Capital analyst Deane Dray reiterated a Buy rating on the stock with a $9 price target (42% upside potential).

“Consistent with recent peer updates, GE is seeing broadly improving activity in its end markets, or at a minimum, some signs of stabilization, such as in Aviation,” Dray wrote in a note to investors. “This news is a relief for investors as there had been growing doubts about the company’s ability to achieve this target after the lack of specifics provided during [second-quarter] earnings.”

The rest of the Street is cautiously optimistic on the stock. The Moderate Buy analyst consensus rating is split between 5 Buys and 6 Holds. With shares down 43%, the $7.98 average price target indicates investors could be reaping a 26% gain in the shares in the next 12 months. (See GE’s stock analysis on TipRanks).