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JP Morgan's Tusa says his $6 GE target 'looks generous' now, shares drop nearly 8%

Key Points
  • General Electric's announcement of more trouble in 2019 was "worse than even we expected," J.P. Morgan's Tusa says.
  • GE CEO Larry Culp said Tuesday the company's industrial free cash flow "will be negative" in 2019.
  • "Our [price target] remains $6 and looks generous after today's news," Tusa says.
An employee of General Electric works on a gas turbine at the GE plant in Belfort, France.
Sebastien Bozon | AFP | Getty Images

General Electric shares are far overvalued given the pressures facing the company over the next two years, according to J.P. Morgan analyst Stephen Tusa.

Tusa said GE's announcement of more trouble in 2019 was "worse than even we expected."

"As long as this sentiment prevails, we don't think the stock can bottom. Our [price target] remains $6 and looks generous after today's news," Tusa said in a note Tuesday. He is widely regarded as the top GE analyst on Wall Street, gaining a following after his negative call in May 2016.

GE stock fell 4.2 percent on Tuesday when CEO Larry Culp sat down with Tusa at J.P. Morgan conference and said the company's industrial free cash flow "will be negative" in 2019. Shares dropped 7.9 percent Wednesday.

Given the negative free cash flow, Tusa said, GE's 2019 earnings have "now become close to NEGATIVE" 50 cents a share. His firm previously estimated GE's earnings would be near positive 50 cents a share this year. Costs from restructuring GE "will be meaningful for several years," Tusa said, and there "will not be a silver bullet to a fix."

"Unlike prior episodes that were based on next year, this seems to stretch into 2021, a whole new level," Tusa said in his note after the event. Culp told Tusa the company's struggling power business will continue to face challenges for "a couple years."

"We are no longer willing to engage in a debate where the Bull case is that Power is "not that bad," the
stock can be valued on $1+ in [free cash flow], " Tusa added. "We disagree with the view that it's 'not that bad.'"

– CNBC's Michael Bloom contributed to this report,