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Shares of General Electric Co. were little changed Monday, bucking the selloff in the broader market, after the most bearish analyst raised his price target by 38%, but said that the new target still called for a near halving in price given concerns over “limited intrinsic value.”
The industrial conglomerate’s stock
GE,
edged up 0.2% in midday trading, while the SPDR Industrial Select Sector exchange-traded fund
XLI,
dropped 0.6% and the S&P 500 index
SPX,
slid 1.4%. See Market Snapshot.
The stock has now climbed 5.4% since a one-for-eight reverse stock split took effect on Aug. 2. Read more about GE’s stock split.
J.P. Morgan analyst Stephen Tusa raised his split-adjusted price target to $55, which was about 48% below current levels, from $40. That target is still by far the lowest of the 20 analysts surveyed by FactSet. The next lowest target is Vertical Research Partners’ Jeffrey Sprague’s $96, while the average target is $122.94.
Tusa reiterated the neutral rating he’s had on GE since March 2020, writing in a note to clients: “Avoid GE given high expectations and limited intrinsic value.”
“GE screens poorly on almost any of the factors we are measuring for given high expectations for a ramp in EBITDA [earnings before interest, taxes, depreciation and amortization], as per the high current-year multiple, all while consensus cuts (have come) for 3Q,” Tusa wrote.
The FactSet consensus for third-quarter earnings per share is 47 cents, down from 48 cents a share in the same period a year ago. Since the start of the third quarter, the FactSet EPS consensus has fallen about 17.5%, from 57 cents, while the stock has slipped 1.5%.
Meanwhile, the third-quarter FactSet EBITDA consensus is for $1.84 billion, which is up from $1.01 billion a year ago and would be the highest total since the fourth quarter of 2019. Keep in mind that GE has missed the FactSet EBITDA consensus in 14 of the past 17 quarterly reports, according to FactSet.
Also read: GE stock jumps after earnings beat, surprise swing to positive free cash flow.
GE is expected to reveal third-quarter results on Oct. 26, before the opening bell.
Tusa said if GE doesn’t live up to these high expectations, the planned deleveraging falls short, raising the risks. After GE’s second-quarter report, the company said it expects to achieve leverage of less than 2.5% over the next few years.
“We see material downside as visibility improves on how aggressive the consensus earnings curve is or if the company executes a portfolio move, which historically has unmasked significantly less underlying intrinsic value than consensus assumes, especially in the context of stubborn high leverage,” Tusa wrote.
