Tough start to the week for beleaguered General Electric (GE).
GE’s stock plunged as much as 8.5% in trading Monday as influential JPMorgan analyst — and long-time GE critic — Stephen Tusa slashed his rating on the stock to Underperform. It was back in December that Tusa surprisingly lifted his rating. Tusa dropped his price target on GE’s stock by a $1 to $5, suggesting it could crater by more than 50% from current levels.
Shares finished the session down 5.2%.
Tusa returned to the well in his focus on GE’s pressured cash position in his latest attack. The analyst thinks Wall Street is “significantly over projecting” the bounce in free cash flow in coming years. Underperforming legacy assets in insurance and power are likely to weigh on the cash flow output of the business, Tusa contends.
Tusa isn’t alone in taking a bearish stance on a stock that has magically gained 55% from the December lows on hopes new CEO Larry Culp could stabilize the business this year and deliver a turnaround by 2020.
“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,’” said Gordon Haskett analyst and longtime GE critic John Inch in a note Monday. “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 maintained his Underperform rating and $7 price target on GE’s stock. GE will announce its first quarter earnings later this month.
GE said 2019 will be a ‘reset year’
Culp continues to pull no punches in his comments on turning the company around, telling Wall Street at an investor day in March that 2019 will be a “reset year” and that GE’s challenges are “complex.” Chief Financial Officer Jamie Miller told Yahoo Finance that Culp is looking at GE through a “reality-based lens,” counter to many other top executives at the company over the years.
Investors appear to have forgotten those realities, and they are plentiful. For example, GE sees first quarter earnings down “significantly” as it works through issues at its power and GE Capital businesses.
However, some analysts like Tusa and Inch have surely not forgotten those realities.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi