General Electric (GE) - Get General Electric Company (GE) Report shares edged lower Tuesday after analysts at JPMorgan said the stock could be overvalued by as much as 20% amid an over-optimistic consensus ahead of its third quarter earnings later this month.
JPMorgan analysts Stephen Tusa, a long-time GE skeptic who carries a 'neutral' rating with a $55 price target on the stock, says weakening near-term fundamentals make the industrial group's longer-term anchors "more optimistic" . He also suggested that recent portfolio moves, as well as the appointment of a new CEO at GE Healthcare earlier this summer, represent a "plan b' for the company as it moves into a more difficult macroeconomic backdrop over the final months of the year.
"We think that, on consensus numbers, the stock is overvalued by around 20%, with more substantial downside based on a more complete accounting for liabilities which compound should there be a shortfall to an optimistic consensus.'
General Electric shares on Tuesday were marked 0.5% lower to $102.20 after hours. The stock closed 1.3% lower in the regular session.
GE shares have gained only around 2% since debuting their split-adjusted price on August 2 as investors looked past the group's stronger-than-expected second quarter earnings last week and an improved outlook for industrial cash flows to fragility in the global economic recovery and surging input costs for the industrial sector.
The group will publish its third quarter earnings on October 26.
GE said in late July that adjusted non-GAAP earnings for the three months ending in June were pegged at 5 cents per share, up from a loss last year and 2 cents ahead of the Street consensus forecast. Group revenues also beat the Street, rising 9% to $18.3 billion.
Looking into the second half of the year, GE reiterated that its sees adjusted earnings in the region of 15 cents to 25 cents per share, but lifted its forecast for industrial free cash flows to between $3.5 billion and $5 billion. Industrial free cash flow for the first quarter was $388 million, GE said, compared to -$845 million in the previous quarter.