JPMorgan says General Electric could be overvalued by 20% or more

Published Tue, Oct 12 20217:20 AM EDTUpdated Tue, Oct 12 20212:18 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The bullish arguments for General Electric don't seem to hold water even when overlooking some of the company's long-term challenges, according to JPMorgan. Analyst Stephen Tusa, a longtime GE skeptic, said the stock appears to be too high even based on projections from more optimistic Wall Street shops. "We think that, on consensus numbers (we are well below), the stock is overvalued by ~20%, with more substantial downside based on a more complete accounting for liabilities which compound should there be a shortfall to an optimistic consensus," the note said. The analyst looked at how a potential breakup of the company could lead the stock to be valued at $130 per share, near where some other analysts have it. However, Tusa said that the process would probably result in something closer to $85 per share and that the market may not be interested in some of GE's pieces in a potential spinoff. "In our view, almost every business that has come out of GE and seen the light of day in a public market setting has disappointed, while some have underperformed materially as stand alone, a function we think of more meaningful and useful disclosure. Synchrony, Baker-Hughes GE, Wabtec are all good examples. In other words, the real intrinsic asset value here is almost always less than it appears to be," the note said. Tusa also contended that other analysts are underestimating the company's debt load. "Just because a company does not have to pay it down this year does not mean it's not a liability (ie – 30 year debt is still debt) – pension is a real liability, and as a reminder has consumed ~$11 B in contributions over the past 5 years," the note said. Shares of GE have gained 20% this year, outpacing the broader market, but the stock is still trading near its pre-pandemic level, meaning that it has been a longer-term underperformer. JPMorgan has a neutral rating and a price target of $55 per share, which is 47% below where the stock closed Monday. -- CNBC's Michael Bloom contributed to this report.

A logo is displayed next to a gas turbine at the General Electric Co. (GE) energy plant in Greenville, South Carolina, U.S., on Tuesday, Jan. 10, 2017. General Electric Co. is scheduled to release earnings figures on January 20.

Sharrett / Bloomberg / Getty Images

The bullish arguments for General Electric don't seem to hold water even when overlooking some of the company's long-term challenges, according to JPMorgan.