GE stock may be set to crash over 50%
It has been an uneasy start to the week for General Electric. (NYSE: GE)
General Electric’s share price faced a rapid decline in trading on Monday, as JPMorgan analyst Stephen Tusa downgraded his recommendation on the stock to underperform. Back in December of 2018 Tusa surprisingly lifted his rating on GE, since then he has slashed the target price on the stock from $6 down to 5$, which suggests to investors that it could fall over 50% from its current trading levels. GE finished trading on Monday down 5.2% at the close.
Tusa said in a recent note, that he has downgraded his recommendation due to GE being under pressure due to cash flow issues. The JPMorgan analyst thinks that Wall Street is over projecting the bounce back of free cash in the next few years. Underperforming assets in insurance and power are highly likely to impact the cash flow output of the business. It would seem as if Tusa isn’t alone when it comes to his bearish stance on the stock. Gordon Haskett analyst and longtime researcher John Inch who has been monitoring GE said recently “This time around, we find it extraordinary that some analysts are suggesting that a potential GE free cash flow loss of up to $4 billion this quarter (vs. a loss of $1.7 billion in 1Q18) would be ‘fair’ or ‘expected,” he continued to say “We believe that magnitude of cash loss could be both highly problematic and poorly received by the bond market and debt ratings agencies. It would also result in GE incrementally drawing on its revolver, and rising Debt/EBITDA – which would not be moving the debt needle in the right direction.” Inch has kept his underperform rating, however does have an increased price target of $7.
GE are set to reveal their first quarter earnings later on this month, which could be a make or break for investors. If we are to see a positive increase to cash flow, and liquidity in the company then what we may see is a complete turnaround, however the chances of that are extremely unlikely. GE has already mentioned in a note to investors that they expect to see first quarter earnings to be down significantly, as it is still working through issues with both its power, and Capital business. It would seem that both Tusa and Inch have not forgotten these key factors when making their ratings.
Paul Chen – Midway Management