JPMorgan cut its General Electric price target and told investors to stay underweight on the shares because of weak fundamentals paired with low expectations of future growth.
"The GE narrative is as open and undefined as it's been in decades," wrote Stephen Tusa Jr., JPMorgan chief financial analyst, in Thursday's report. "While we expect a fresh start, a positive, we don't see a quick or easy fix to the current predicament."
The analysts cut their 12-month price target to $22, which would be a 20 percent drop from Wednesday close of $27.35, reiterating their previous underweight rating. "Unlike other resets where the multiple expands, we don't see the future growth potential as a catalyst here," the note said.
General Electric CEO Jeff Immelt announced last month that he would be stepping down at the end of the year, an unexpectedly early exit for the 16-year chief. Since Immelt took the reins at GE in 2001, the company's stock has fallen 29 percent, the worst performer in the Dow Jones industrial average since that time.
While the S&P 500 is up 8.65 percent year to date, General Electric lags, down by more than 13 percent.
JPMorgan's 133-page note, entitled "The Empire Resets," takes a deep dive into some of the company's most pernicious issues.
Tusa forecasts an EPS reset closer to $1, material restructuring and project selectivity, and changing capital allocation strategies.
The analyst also notes that incoming CEO John Flannery could take several key actions in leading the "empire."
"From here, the new CEO, over the course of the 2H, has four fronts around which to set a new agenda, for which we believe everything is on the table for change," wrote Tusa. To improve earnings per share and free cash flows, JPMorgan suggested Flannery would "likely" consider restructuring and adjusting portfolio priorities.
But despite these efforts, JPMorgan says the combination of reduced EPS outlooks and shrinking growth cannot easily be changed with restructuring.
"What went wrong cannot be easily fixed," wrote Tusa. "Put simply, poorly timed investments to catch up to emerging markets and ultimately optimistic growth assumptions for 'resource rich' countries, along with a corporate imperative for market share, has left the company with structural over-capacity, mostly in Power/Oil&Gas/Transportation."