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General Electric shares soared to their best day in a decade following the Thursday's fourth-quarter earnings report but J.P. Morgan analyst Stephen Tusa remained unconvinced by GE's results.
"We come away from the 4Q scratching our heads at the stock reaction," Tusa said in a note to investors. "We believe one has to make highly optimistic assumptions to get back to a run rate that supports anything near $10."
Similar to the six key questions Tusa outlined before GE's earnings, on Friday he put forward six major reasons why his firm does not think the stock's comeback was justified.
CEO Larry Culp did not provide a forecast to shareholders for GE's 2019 earnings, instead saying industrial revenue would be up "low-to-mid single digits" next year. While Wall Street's consensus is that GE will report 81 cents a share of earnings in 2019, Tusa cut his estimate to 28 cents a share.
"There was no official EPS/profit guidance, and therefore no official reset," Tusa said.
GE closed up 0.3 percent at $10.19 a share, although they slipped 1.7 percent in premarket. The stock soared nearly 12 percent on Thursday following GE's report, closing above $10 a share for the first time since November.
Tusa gained a following for his work on GE after his negative call in May 2016. Tusa became the first to warn that shares of the one-time Dow Jones Industrial Average member were going to fall, back when the stock was above $30. His reports will often move the stock and Tusa himself may have in fact helped spark the recent rebound in the shares when, in mid-December, he said that a level around $6 a share was the bottom.
Several Wall Street analysts said to GE's stock reaction was due to the company's stronger-than-expected industrial free cash flow of $4.5 billion. Tusa disputed that metric, saying that this quarter's industrial free cash flow was "temporarily bolstered." Comments made by Culp and CFO Jamie Miller on the call "combined with our calculations suggests a significant decline in 2019," Tusa said. J.P. Morgan estimates industrial free cash flow was about $2.5 billion.
The continued pain in GE's power business was also key to Tusa.
"Power is worse than even our expectations, with a myriad of costs to fix problems, and, more importantly, service orders that continue to collapse, with management now acknowledging the attrition and price pressure here," Tusa said.
During the conference call with investors, Tusa pressed Culp and Miller for more details on GE's cash generation, specifically with the GE Capital aviation services business. But executives deferred, saying they would answer "when we have everything locked down" and "we'll do that soon."
Tusa maintained J.P. Morgan's neutral rating and $6 price target on GE.
"We will stick to the numbers, on which the read through reaffirms our well below-consensus model, and there is no change to the math that supports our $6 PT," Tusa said.
– CNBC's Michael Bloom contributed to this report.