Not even one year ago, the Street was working under the assumption that General Electric Company (NYSE: GE)'s $2 EPS target was "not achievable," so estimates moved lower to $1 per share. But the "great reset is not quite reset," according to JPMorgan.
JPMorgan's C. Stephen Tusa Jr. maintains an Underweight rating on General Electric's stock with a price target lowered from $14 to $11.
The sell-side bulls "stuck" with a $2 EPS estimate until very recetly and are now standing by a $1 EPS estimate, within management's guidance of $1 to $1.07, Tusa said in a Tuesday note.
The problem is that the $1 EPS estimate is "still disconnected" from reality for four primary reasons, the analyst said:
- A $1 EPS estimate "is not a credible number," since it does not include necessary restructuring initiatives in power and renewables, which creates downside to EBIT — and any proceeds from potential asset sales will flow to the balance sheet as opposed to shareholders, the analyst said.
- A $1 EPS estimate is not a trough number for multiple reasons, as the aviation segment is "well off" its trough; health care isn't very cyclical; and Baker Hughes, a GE company Class A (NYSE: BHGE) could be close to its trough, but visibility is "challenged," Tusa said.
- Any upcoming guidance for profit upside in the power segment "should not be banked," as there is "no tangible support for a sector-type margin entitlement in its current form."
- GE has high leverage, relies on asset sales and has "no room for breakage" on fundamental guidance that's already "aggressive," the analyst said.
General Electric shares were down 3.41 percent at $14.58 at the time of publication Tuesday morning.
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A rendering of the GE Haliade-X offshore wind turbine. Courtesy photo.
Latest Ratings for GE
|Mar 2018||JP Morgan||Maintains||Underweight||Underweight|
|Feb 2018||Barclays||Initiates Coverage On||Equal-Weight|
|Feb 2018||JP Morgan||Maintains||Underweight||Underweight|
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