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GE shares tank after JPMorgan says its dividend is 'still high risk’

Key Points
  • J.P. Morgan cut its price target on General Electric shares from $14 to $11, the lowest forecast on Wall Street.
  • "We still see structural concerns in the key Power markets, minimal margin for error on leverage, numerous tail liabilities at both GE and GECS [General Electric Capital Services]," the firm's analyst writes.
  • The company's shares fell 4.4 percent Tuesday after the J.P. Morgan report.
GE shares are tanking after JPMorgan says its dividend is "still high risk"
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GE shares are tanking after JPMorgan says its dividend is "still high risk"

Difficult times for General Electric investors will not end anytime soon and could send the shares tumbling another 27 percent over the next 12 months, according to a top Wall Street firm.

J.P. Morgan slashed its price target from $14 to $11, the lowest GE price forecast out of the 16 research shops that cover the company, according to FactSet. The industrial company already cut its dividend in half in November 2017. It currently has a 3.2 percent dividend yield.

"We still see structural concerns in the key Power markets, minimal margin for error on leverage," analyst Stephen Tusa wrote in a note to clients Tuesday. "On the dividend, we have heard some espouse the 3% yield that is above the sector average. The issue is that while it's not necessarily cut near term, it is not growing, and at a ~95% payout on post divestiture FCF it's still high risk."

The company's shares fell 4.4 percent Tuesday after the J.P. Morgan report. GE shares have significantly underperformed the market. The stock has declined 49 percent in the past 12 months through Monday versus the S&P 500's 17 percent return.

General Electric slumps on another downgrade
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General Electric slumps on another downgrade

J.P. Morgan also reaffirmed its underweight rating on GE, citing the fundamental problems in its power business.

Tusa said management's guidance for about $1 in earnings per share this year is not "credible" because it doesn't include restructuring costs.

The analyst also downplayed the impact from any potential asset sales by the company.

"GE is not a safety stock in a more volatile market environment," he wrote. "The bottom line is that, not surprisingly, buyers of these assets are likely selective on those that are cash rich and will not be buying 'contract assets' which will remain with GE to deliver on."

The company did not immediately respond to a request for comment.

— CNBC's Michael Bloom contributed to this story.

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