J.P. Morgan Still Sees Doom And Gloom in General Electric (GE) Stock; Here’s Why


General Electric (GE) continues to show investors its rebound efforts are paying off. The industrial giant released first-quarter earnings last week and to the delight of many investors, showed progress. While perhaps shares wouldn’t jump on the news for a “normal” company — profit fell 14%, after all — investors were happy to see no significant bad news.

Even so, J.P. Morgan analyst Stephen Tusa remains bearish on General Electric stock, as he maintains his Underweight rating and $5 price target, which implies nearly 50% downside from current levels. (To watch Tusa’s track record, click here)

Tusa wasn’t too moved by GE’s recent earnings report. The analyst points out that it was “far from” both a disaster and blowout, as “earnings were not a clean beat, but FCF was.” EPS came in at $0.14, vs. expected of $0.09, while free cash flow came in at $1.8 B ahead of the -$3B Tusa had highlighted as consensus.

The analyst says, “management’s explanation of the beat versus their commentary as recently as mid-March that FCF would be down ‘substantially’ y/y is advances from orders in Aviation/Power, a plausible explanation, but also evidence of how lumpy FCF can be, why profits (booked on delivery) don’t necessarily line up with FCF over time, and why there is the ability for the company to pull forward cash, as orders are easier to time than revenues.” Essentially, the analyst belives that, while great the company exceeded expectations on cash flow, this isn’t always the best metric as FCF comes in waves. A great performance is not indicative of a strong company, and vice-versa.

While Tusa isn’t a buyer of GE, the recent report has made many excited. For example, another strong showing reinforced what many already knew about CEO Larry Culp — that he is a great fit for the job. Culp is showing that his restructuring plan continues to make the company’s financials stronger, as GE increase focus on core products, while selling off non-core assets. Perhaps most importantly for investors, the CEO continues to be transparent and clear with the plan forward.

All in all, not everything is perfect at GE, even as its stock is up 40% since the beginning of the 2019. For example, the production slowdown of the Boeing 737 Max makes for a headwind for GE, which produces its engines. But nevertheless, TipRanks analysis of 16 analyst ratings shows a consensus Moderate Buy rating on the stock, with seven analysts rating Buy, seven Holding and two Selling. The average price target among these analysts stand at $11.18, which is about 7% higher from where shares are currently trading. (See GE’s price targets and analyst ratings on TipRanks)

 

Read more: General Electric (GE) Stock at $14-16 a Share? This Analyst Thinks It’s Possible

 

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