GE loses a longtime fan amid credibility concerns

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General Electric Co. is having a hard time keeping friends on Wall Street. It lost another one on Monday, driving the widely owned shares to a new multiyear low.

C. Stephen Tusa Jr., who follows GE for JPMorgan Securities, cut his rating on the stock to ‘neutral’ (i.e., ‘hold’) from ‘overweight’ (‘buy’), saying the company faces too many near-term challenges -- including senior management’s damaged credibility and the possibility that lower-level managers won’t be willing to tell their hard-driving bosses the truth about things.

Tusa had been recommending the stock since at least mid-2004. ‘We have been wrong,’ he conceded in a new report.

His rating cut on GE, as he pared his 2009 earnings estimate, helped send the shares to a 4 1/2-year closing low of $28.97, down 18 cents.

Tusa repeated his call for the once-esteemed conglomerate to jettison more of its far-flung businesses to make the company a simpler idea for investors to digest.

Pressure on GE to restructure has been intense since the company on April 11 dropped an earnings bomb on Wall Street, reporting a first-quarter profit that was 14% shy of analysts’ estimates.

GE’s huge financial services business has been a drag on the bottom line amid Wall Street’s credit nightmare, but the first-quarter earnings shortfall also reflected disappointing results in the company’s industrial, healthcare and infrastructure units.

Chief Executive Jeffrey Immelt last month announced plans to sell the company’s appliance arm, a step that Tusa sees as leading to a more dramatic remake of GE’s wide-ranging business mix (which spans broadcasting, aircraft engines, commercial real estate lending and a lot more in between).

Without a significant corporate reshuffling, ‘Even if results improve, investors are going to have a hard time believing they are sustainable,’ Tusa said in his report.

In the meantime, I was intrigued by Tusa’s warning that GE’s managers might go too far in trying to make their numbers after the first-quarter debacle. Never underestimate what a ravaged stock price will do to the corporate psyche, after all.

‘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.

‘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.’