GE’s Top Wall Street Critic Upgrades, Says ‘We Were Wrong’
GE’s Top Wall Street Critic Issues Upgrade, Says ‘We Were Wrong’
(Bloomberg) -- General Electric Co. is gaining some favor over its top skeptic in Wall Street, who cited a better-than-expected performance last year.
JPMorgan’s Stephen Tusa upgraded the shares to neutral from a sell-equivalent rating, citing 2019’s free cash flow that topped his predictions as well as an improved outlook for 2020. The analyst has held an underweight stance on the stock since April.
“We were wrong,” Tusa said, noting that GE shares have outperformed the sector by 11% since that call.
GE is big enough that it has many options to boost near-term cash in a given period even as there are still questions about the true value of the underlying businesses. That makes it tough to be a bear in the stock. “As we have seen in some instances, the advance on orders is worth more than the revenue booked over time,” he said.
Yet his new price target of $8, up from $5 previously, is anything but bullish. With that new target, Tusa is anticipating a 26% decline from where the shares closed on Friday.
The comments come amid GE’s efforts to regain investor trust and recover from one of the deepest slumps in its 128-year history. Chief Executive Officer Larry Culp has sought to reduce debt, sell assets and improve operations since joining the company in late 2018. During fourth-quarter results announced in late January, GE said industrial free cash flow, a closely watched indicator of its earnings potential, was projected to climb to as much as $4 billion this year from $2.32 billion in 2019, pushing shares higher.
Tusa turned heads on Wall Street when he cut GE to the equivalent of sell in May 2016, about a year before the company’s problems surfaced broadly. Over 2017 and 2018, GE lost more than $200 billion in market value as it struggled with weak cash flows, deteriorating earnings and flagging demand for its power equipment.
The analyst upgraded GE to neutral in December 2018, shortly after Culp took the helm, but dropped his rating back to underweight about four months later. He said at the time that investors were underestimating the company’s challenges to get back on its feet.
Hurdles still remain, Tusa said in his latest note. He underscored continued structural concerns in the key power markets, along with still relatively high financial leverage, and numerous liabilities at both GE and its financial business.
Meanwhile, UBS on Monday also boosted its price target on the company and reiterated the buy rating. UBS’s new target of $15, up from $14, is just shy of the Street-high $17. Also, the company’s legendary former CEO Jack Welch - often credited with building GE into one of the world’s largest companies - has died, CNBC reported earlier.
GE’s stock price gained as much as 3.5% to $11.26 in New York, but pared the gains to trade down 0.6%. GE has modestly outperformed the broader market in early 2020 after soaring 53% last year, its best performance in almost four decades.
To contact the reporters on this story: Esha Dey in New York at edey@bloomberg.net;Richard Clough in New York at rclough9@bloomberg.net
To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Will Daley, Richard Richtmyer
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