Please ensure Javascript is enabled for purposes of website accessibility

Why General Electric Stock Got Demoted Today

By Rich Smith - Mar 11, 2021 at 12:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

J.P. Morgan weighs in on the great GE debate.

What happened

General Electric (GE -0.09%) stock took a tumble in Thursday morning trading, down 7.7% at 11 a.m. EST in response to mixed news out of Wall Street.

In a confusing tumble of analyst actions this morning, Oppenheimer first downgraded GE stock. Then Deutsche Bank, Barclays, and RBC Capital all raised their price targets on the stock. Then J.P. Morgan basically told all of the above that they're crazy: GE stock has "material downside," the optimists are overoptimistic, and the pessimists aren't nearly pessimistic enough!

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

Let me run that down for you. In today's sole downgrade, investment bank Oppenheimer cut GE stock to perform (i.e., hold) with no specific price target. At the same time, Oppenheimer praised GE for how it is executing its turnaround and predicted GE will return to generating between $4.2 billion and $4.4 billion a year from Aviation sales by 2023 or 2024 -- with total free cash flow per share of as much as $0.75 to $0.80 by the latter year, reports StreetInsider.com.

The next three banks are even more optimistic, with Deutsche valuing GE shares at $14 each, and Barclays and RBC going to $15. All three analysts were surprised to see GE stock fall yesterday in response to its decision to sell its aircraft leasing business to AerCap Holdings. RBC called the decision a "major step forward" for GE, and Barclays predicted it sets the stage for "rapid earnings growth" and "strong" free cash flow, reports TheFly.com.

And then there was J.P. Morgan.

Now what

Folks with long memories may recall how, about a couple of years back, GE perma-bear J.P. Morgan sparked a rally in GE stock when it broke a more than two-year streak of relentless negativity by upgrading GE stock. The rally stopped a multiyear decline in GE's share price in its tracks and helped nearly double GE's share price over the succeeding two years. It also cemented the analyst's status as a sort of General Electric fortune-teller, such that when J.P. Morgan was optimistic, investors would buy GE -- but when it turned negative, they would sell.

And that's the real problem with GE stock today. Contradicting all the happy talk from the other analysts -- even downgrader Oppenheimer -- J.P. Morgan insists that GE stock that still sells for over $12 today is worth no more than $5 a share. Eschewing projections for free cash flow several years into the future, the analyst warns that GE will burn cash in the near future, even as it struggles with a debt load of "7-times-plus leverage" (says TheFly.com).

In short, J.P. Morgan sees GE's $12-plus stock price as "unsustainable" and predicts the stock will be cut more than in half. No wonder investors are selling!

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
GE
$74.98 (-0.09%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.