Feb. 6 (Bloomberg) -- General Electric Co.’s AAA rating is “unsustainable” and the company will probably have to cut its dividend, said Stephen Tusa, a JPMorgan Chase & Co. analyst, as he lowered his price target on the shares to $9 from $13.

GE’s industrial and capital finance units both missed JPMorgan’s estimates in the fourth quarter, suggesting his projection for the Fairfield, Connecticut-based company this year and next are still too high, Tusa wrote in a note to clients today. He cut his per-share profit estimate for 2009 and 2010.

“We have decided to take an axe to our estimates to get to a point where we can truly answer the question of ‘how bad could it get?’” the New York-based analyst wrote. “We think that the AAA and the dividend issues look too large as shoes yet to drop.” Tusa rates the shares “neutral.”

Chief Executive Officer Jeffrey Immelt yesterday said GE generates enough cash to maintain its shareholder dividend this year and that he’s prepared to run GE as an AA-rated company amid economic conditions that are the worst since 1973 and may descend into depression. The stock reached its lowest price yesterday since Nov. 8, 1995.

GE is likely to cut the payout, costing $13.4 billion annually, during this year’s second half after losing its top credit ratings in the first half, Tusa wrote.

Moody’s Investors Service said Jan. 27 it’s evaluating lowering the long-term debt rating for GE and GE Capital, a review that typically takes about 90 days. Standard & Poor’s said in December that GE had a one-in-three chance of losing its top rating over the next two years, and changed its outlook to “negative” from “stable.”

Change Catalyst

GE cut its forecast twice last year, surprising investors and analysts first in April after a years-long track record of rarely varying from analyst estimates by more than a penny. In December, the company announced it would discontinue giving per- share forecasts starting this year. Immelt took over for Jack Welch in September, 2001.

“Former CEO Welch built a culture of earnings management that was unsustainable,” Tusa wrote. “AAA loss/dividend cut should be the catalyst for change, a longer-term positive.”

Tusa projects 2009 earnings per share will be 85 cents, instead of the $1.20 he previously estimated. Next year, profit will be 70 cents instead of $1.10, he wrote. The average estimates of at least 11 analysts surveyed by Bloomberg was for profit of $1.29 this year and $1.34 in 2010.

General Electric rose 38 cents to $11.23 at 11:50 a.m. in New York Stock Exchange composite trading. The shares had fallen 68 percent in the past year before today.

Deep Cut

GE said Jan. 23 there were no changes in the board’s plan to pay the $1.24 annual dividend and that the company had already disbursed its first-quarter payment as part of that commitment. The dividend is yielding about 11 percent.

Any reduction in the payout is “going to be deep so the company does not have to come back for another cut,” Tusa wrote. Last year’s dividends amounted to 69 percent of profits, a payout ratio about 20 percentage points higher than the average since 1994, according to Bloomberg data.

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Edmond Lococo in Boston at elococo@bloomberg.net.

Last Updated: February 6, 2009 12:05 EST