General Electric is soaring after JPMorgan upgrades it for the first time in 2 1/2 years (GE)
Tusa said the iconic industrial giant had a more “balanced risk-reward at current levels.”
On Thursday, GE said its digital unit would sell a majority stake in ServiceMax, a software provider, to the technology-focused private-equity firm Silver Lake.
General Electric surged as much as 12.7% to $7.52 a share before Thursday’s opening bell — on its way to making its biggest intraday soar in more than five years — after JPMorgan gave a rare upgrade on the stock’s rating. The firm said the iconic industrial giant had a more “balanced risk-reward at current levels.”
“Key to the story, in our view, is the outcome of ‘known unknowns’ in near term, which are better understood and around which debate is more balanced, as opposed to being overlooked by most bulls in the past,” the JPMorgan analyst Stephen Tusa, a long-term GE bear, said in a note distributed on Thursday.
“We now believe a more negative outcome one these liabilities (equity dilution is one) is at least partially discounted, and it’s possible the company can execute its way through an elongated workout that limits near-term downside.”
Tusa raised his rating to “neutral” from “underweight,” a view he had held since May 2016 when the stock was above $30. He maintained his price target of $6, however — 10% below where shares were trading Wednesday.
Tusa’s notes on GE often move the stock. Shares tumbled more than 9% last month when he slashed his price target to $6 — the lowest on Wall Street.
GE’s stock has lost more than half of its value this year amid the company’s lagging power business, price-cost pressures compounded by the US-China tariffs, and behind-schedule deliveries of its LEAP engine.
On October 1, the company appointed Larry Culp as its new CEO to navigate the company through its turnaround. But the company’s first quarterly results under the new management underwhelmed. The conglomerate missed Wall Street estimates on both the top and bottom lines and slashed its dividend to a penny.
To increase investor confidence, GE’s management has sped up efforts to reduce debt by selling assets. Last month, GE announced plans to expedite efforts to sell a $4 billion stake in the oil-field-services provider Baker Hughes. Additionally, its finance arm, GE Capital, sold a $1.5 billion healthcare equipment finance portfolio to the US lender TIAA Bank.
And on Thursday, General Electric said its digital unit would sell a majority stake in ServiceMax, a software provider, to the technology-focused private-equity firm Silver Lake.
With these efforts, the company’s bottom could be near, according to Tusa.
“On the flip side, we are increasingly assuming a material equity raise could be necessary, and, in this instance, while we think there would be near-term downside, we also think there could be support at a lower level, and likely a benefit of the doubt for new management with a higher multiple on lower earnings and free cash flow,” he said.
GE has been the worst-performing S&P 500 stock this year, down 61.55% through Wednesday.