GE Stock Rally Seen at Risk as JPMorgan Makes Lone Sell Call

  • JPMorgan’s Tusa calls company’s 2018 profit target ‘elusive’
  • Oil and gas market may weigh on GE’s earnings, analyst says

General Electric Co.’s stock surge over the past year may be running out of steam as the company forges ahead with a dramatic overhaul of its businesses, according to the only analyst who recommends selling the shares.

Steve Tusa of JPMorgan Chase & Co. expects GE to decline to $27, the lowest of all analyst targets compiled by Bloomberg and well short of the $33.79 average. Resuming coverage Thursday with an underweight rating, down from neutral, he is the only one of 19 analysts not recommending buying or holding the stock.

“While recognizing a bold portfolio transformation, and solid technology potential, we think these positives are more than reflected in GE stock at current levels,” Tusa said in a note. GE’s stated target of $2-a-share profit in 2018 “will remain elusive,” he said.

The company’s outlook had been buoyed by a series of strategic moves, including the $10 billion acquisition of Alstom SA’s energy business and the sale of the bulk of GE’s finance arm. While refocusing GE on industrial manufacturing, Chief Executive Officer Jeffrey Immelt has also pushed to develop a software business to enhance the capabilities of jet engines, oilfield equipment and gas turbines.

Shareholder Support

The overhaul has drawn broad support from investors, including Nelson Peltz’s Trian Fund Management LP, which in October announced a $2.5 billion stake in GE. That helped push the shares to a 23 percent gain in 2015, far better than the 0.7 percent drop in the Standard & Poor’s 500 Index.

The stock declined 2.6 percent this year through Wednesday, compared with a 1 percent advance in the S&P 500. GE dropped another 1.1 percent to $30.01 at 1:12 p.m. Thursday in New York.

Despite the recent fall, GE still trades at about a 10 percent premium to peers, leaving room for further declines, Tusa said.

The oil and gas market, along with transportation and connected energy, may be a drag on GE, he said. The company said in a conference call last month that operating profit in the crude division could fall 30 percent this year.

“We don’t argue that these are not ‘good businesses,’ what we argue with is ability to consistently outperform,” Tusa said.

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