JPMorgan Dismisses Buffett-GE Buyout Rumor

General Electric Company GE stock jumped 4.3 percent on Wednesday on speculation that Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) CEO Warren Buffett may be interested in a buyout of GE, but Wall Street analysts aren’t buying it.

The Analyst

JPMorgan analyst Stephen Tusa has reiterated an Underweight rating and $11 price target for GE.

The Thesis

The Buffett rumors originated from an investor service called Trade The News, which said Berkshire has been building a stake in GE. Tusa is surprised a source with seemingly no credibility is moving the market so much.

Tusa said it’s possible Buffett would step in and take a position in GE, but said taking a preferred or convertible stake similar to his previous GE position would be Buffett’s most likely path.

Tusa is also skeptical of an outright buyout.

“Buffett could buy the whole company, something we think is prohibitive given liabilities and would cannibalize business for companies like PCP, while the $150 B in GECS assets would probably raise financial regulators ire, something Berkshire has deftly avoided,” Tusa said.

Tusa said GE tends to react in a more volatile way to rumors than other stocks simply due to the sheer number of in-the-money short sellers and dip buyers who are watching the stock so closely. However, he said the long-term investment thesis for GE will remain bearish until the company’s fundamentals show signs of prolonged improvement.