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Why General Electric Stock Got Demoted Today

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

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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

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

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

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!

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