JPMorgan Lowers General Electric Price Target, Says EPS Guidance Is 'Not A Credible Number'

Not even one year ago, the Street was working under the assumption that General Electric Company 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.

The Analyst

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 Thesis

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 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. 

Price Action

General Electric shares were down 3.41 percent at $14.58 at the time of publication Tuesday morning. 

Related Links:

Ken Langone's Inside Account Of General Electric's Blunders

Warren Buffett Says He Could Write A Check To Buy General Electric If He Wanted To

A rendering of the GE Haliade-X offshore wind turbine. Courtesy photo.