GE Gets Big Upgrade As Longtime JPMorgan Bear Lifts Rating

JPMorgan's multi-year bearish stance on General Electric Company GE stock has come to an end after underperforming the electrical equipment and multi-industry sector by 11,000 basis points since May 2016.

The Analyst

JPMorgan's Stephen Tusa, Jr. upgraded General Electric from Underweight to Neutral with an unchanged $6 price target. (See Tusa's track record here.)

The Thesis

Tusa said GE's woes over the years are highlighted by downward revisions to its earnings and cash expectations, a 95-percent slash to the quarterly dividend payout and new leverage and liability concerns. After the 55-percent decline in the stock throughout 2018, however, the bottom may be near as "known unknowns" are now "better understood" as opposed to be "being overlooked by most Bulls," Tusa said in a note.

A more negative outcome on GE's known liabilities is somewhat discounted and it's possible management can work its way through "elongated workout" that minimizes near-term downside potential. Even if the company oversees a large equity raise, Tusa said the downside risk to the stock is $5 per share and the new management team will likely be granted benefit of the doubt.

GE's challenges still remain unchanged and the company may need to eliminate $65 billion worth of straight debt, soft liabilities and pension before returning to a new "normal."

Bottom line, the analyst remains "net negative" on GE but with the stock within 10 percent of the research firm's $6 price target, the risk-reward is more balanced in the near term and investors should still "step aside."

Price Action

Shares of GE were trading higher by 10 percent at $7.39 Thursday morning.

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Photo courtesy of GE.