General Electric Downgrade Gets Big Wall Street Shrug
NEW YORK (TheStreet) -- General Electric(GE) 's downgrade by Moody's Investor Service was expected and is unlikely to affect the company's plans to resume a dividend from its financial unit to the parent, according to a report Wednesday from Credit Suisse.
Moody's lowered GE's senior unsecured debt rating by one notch and that of its financial unit, GE Capital Corp., by two notches on Tuesday, having placed the issuers on review for a possible downgrade March 19.
Mitchell believes equity investors are unconcerned with what he describes as Moody's "more cautious methodology towards financial institutions."
The analyst notes financial stocks have rallied sharply year to date even as Moody's has downgraded the sector, suggesting to Mitchell that "equity investors had already adjusted for the higher risk profile."
Mitchell believes the rise in GE's funding costs resulting from the downgrade should be "fairly limited."
He also believes GE's desire to have the financial unit pay a dividend to the parent company, which will require approval from the Federal Reserve, remains on track. Assuming it does, it "will allow for some increased capital returns to shareholders," Mitchell writes. He also sees the payout to the parent leading to "a more aggressive M&A program" in the second half of the year.
Separately on Wednesday, Merrill Lynch analyst John Inch upped his price target on GE to $21 from $19, citing "the improvement in valuations assigned to GE's industrial and financial services peers." Inch's report did not mention the Moody's action.
GE opened lower on Wednesday and was down by 1.10% in the first 20 minutes of trading, consistent with a 1.07% decline in the Financial Select Sector SPDR(XLF) and a 0.86% drop in the Select Sector Industrial SPDR(XLI) , exchange-traded funds that track the financial and industrial sectors.
-- Written by Dan Freed in New York.
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