- General Electric (GE -1.8%) is reiterated with an Underweight rating and $10 price target by J.P. Morgan bear Stephen Tusa, who says it is "important for investors to understand that our $10 price target is not the ‘worst-case’ outcome, and there is more to the story than stabilizing Power."
- There's much more to the GE bear case than just the Power unit, Tusa argues, saying many investors are “overlooking that a range of $12B to $18B in assets may be double counted by GE and sum-of-the-parts bulls as both core working capital for GE Industrial and financial assets for GE Capital Services that are used to support capitalization ratios, something that ratings agencies also may be overlooking, while ignoring the structural $3B cash burn at GECS.”
- Tusa also cites the Power business drag on GE’s cash situation, and the impaired operating model at GECS; his math shows that the run rate for the industrial business’s free cash flow next year is around $3B, which basically needs to flow straight to obligations such as pension contributions, leaving little room for debt reduction.
- The analyst raises other issues too, such as cost cuts that are unlikely to be able to “save the day."
- Now read: General Electric: Excellent Potential Where You Would Least Expect It
Original article