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General Electric Fell 5% after JPM Renewed Its ‘Sell’ Rating

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JPMorgan Chase downgraded General Electric

General Electric (GE) shares fell more than 5% on April 8 after JPMorgan Chase’s (JPM) well-renowned analyst Stephen Tusa renewed his “sell” rating on the stock and lowered his target price. Tusa lowered his rating to “underweight” from “neutral” and cut the target price by $1 to $5.

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The latest rating downgrade shows Tusa backing out from the previous upgrade in December. In a note to clients on December 13, Tusa wrote that the struggling company’s risk-reward looks balanced at the current level. He upgraded the stock to “neutral” from “underweight.” At that time, General Electric stock was trading between $6 and $7, which was close to Tusa’s target price of $6.

Since December 13, the stock has risen 47%. Investors seemed too optimistic about Larry Culp’s, General Electric’s CEO, fast actions towards restructuring the company.

Tusa warned investors about underestimating the risks inherent in the stock. Tusa thinks that the company’s free cash flow will be zero this year, which could limit its earnings potential. In a note to clients on April 8, Tusa said, “Investors are underestimating the severity of the challenges and underlying risks at GE, while overestimating the value of small positives,” according to Bloomberg.

Tusa stated that the company’s ailing power business will likely continue to struggle. Although Tusa thinks that General Electric has taken remarkable initiatives to revive the business unit, it will take longer than many analysts expected.

Stock price performance

So far, General Electric has stock has been strong in 2019. The company’s shares have risen more than 30% YTD (year-to-date) and have outperformed all of the major US indexes. The Dow Jones, the NASDAQ, and the S&P 500 have risen 12.9%, 19.9%, and 15.5%, respectively, YTD.

General Electric’s YTD return has also outpaced the gains of most of its industrial peers (XLI). Caterpillar (CAT) and 3M (MMM) shares have risen 10% and 12.9%, respectively, YTD.

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