J.P. Morgan’s Stephen Tusa downgraded General Electric shares to underweight from neutral and cut his 12-month price target to $5 from $6.
“We believe many investors are underestimating the severity of the challenges and underlying risks at GE, while overestimating the value of small positives, and with a 38% move in the stock year to date, and >50% cuts to forward fundamental FCF (free cash flow) anchors, we are cutting our [price target] and moving to” underweight, wrote Tusa in a note to clients Monday.
GE shares lost 6 percent in premarket trading to $9.38 on the call from the influential analyst. Tusa first went negative on the stock back in May 2016 before most on Wall Street. He then helped spur a turnaround in the shares in December when he upgraded the stock to neutral from underweight.
But the analyst has changed his view back to clearly negative on Monday:
“The driver of the downgrade is our view that the Street is significantly over projecting the bounce in FCF (free cash flow) in the coming years, off levels that we calculate at zero currently, as Power/Renewables remains weak, GECS (GE Capital Services) will likely consume material cash for the foreseeable future, Aviation fundamentals, as per underlying FCF, are weaker than meet the eye, while lingering sector high leverage including entitlements leaves the company vulnerable to liquidity issues in the event of a recession, for which a potentially dilutive sale of the rest of Healthcare may be needed.”
This is a developing story. Check back for updates.