JPMorgan Says GE's Outlook Is 'Worse Than We Think'

Things may soon be going from bad to worse for General Electric Company GE investors. In a new note to clients on Thursday, JPMorgan reiterated its bearish take on GE stock and said weakness in the company’s financial performance in recent years isn’t necessarily cyclical. Instead, the firm thinks all the optimism about a GE short squeeze or a turnaround story or a return to prior earnings levels is simply a result of denying the reality that GE is no longer the company it once was.

JPMorgan believes GE could fall well below consensus earnings expectations in the second half of the year as part of a potentially painful long-term reset of market expectations.

“To be clear, this is a reset to a lower number off of which future growth is uncertain and realistically below average, different from a ‘kitchen sink’ which implies a base that is unrealistically depressed and can snap back,” JPMorgan wrote.

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The firm said GE bulls hoping that $24 may serve as a base of support could soon be in for a rude awakening. Instead, JPMorgan has a price target of $22 for GE. The firm said $24 may soon be a ceiling, with the high teens representing “investable fair value.”

“With limited potential for a snapback, challenged end market exposures (fossil power/oil & gas), likely still below average FCF conversion (even after the reset), and below average portfolio optionality, including a dividend at risk of cut in a tougher macro environment and funded in the near-term by asset sales, we don’t think GE deserves a premium valuation (i.e., a high multiple on ‘trough EPS’),” JP Morgan concluded.

JPMorgan is now calling for full-year EPS of $1.53 in 2017 and $1.50 in 2018.