General Electric (GE) may have finally found its footing on Thursday.
Shares of the Boston-based conglomerate have surged in pre-market trading after an upgrade from GE soothsayer Stephen Tusa of J.P. Morgan.
STOP TRADING! Tusa Goes from Sell to Hold $GE...the bottom is being put in. Congratulations to one of the most amazing, incredible calls of a lifetime, to sell GE... Steve Tusa from JP Morgan. Research at its best. Maybe best ever..— Jim Cramer (@jimcramer) December 13, 2018
The stock has bounced upward more than 11% in pre-market action following the early morning research release.
"We are upgrading GE to Neutral and removing it from the Analyst Focus List as a short idea as we now see a more event-driven, balanced risk reward at current levels," Tusa reasoned. "Key to the story, in our view, is the outcome of the "known unknowns" in near term, which are better understood and around which the debate is more balanced, as opposed to being overlooked by most bulls in the past."
The upgrade from Tusa is particularly pertinent as he has shown to be correct in predictions all the way down. Since May 2016, Tusa has maintained a "Sell" rating on the stock and has lowered his price target a stunning five times in 2018, finally arriving at a paltry $6 per share target.
His bearish outlook has coincided with a decline from north of $30 per share at the initiation of his "Sell" call to under $7 per share, a 10-year low, in December.
Based on the analysis, a bottom may have finally formed for the struggling, debt-laden company that newly-named CEO Larry Culp is attempting to rebuild by breaking off businesses and largely eliminating dividend payouts.
To be sure, Culp will have a long way to go before he can overcome the shortcomings left over from his short-tenured predecessor John Flannery and long-standing forerunner Jeff Immelt.
The company remains under SEC investigation for potential fraud in its insurance business, $100 billion in liabilities remain on its balance sheet that includes nearly $30 billion in pension liabilities, and massive restructuring efforts still lie ahead that could increase pressure on the company's debt downside.
Tusa indicated that the problems that remain at the once market-leading industrial giant could necessitate an equity raise that would lead to further dilution of the already deeply discounted shares.
"We are increasingly assuming a material equity raise could be necessary," he warned.
Still, now that all of these ills are known and the stock has fallen to just one-third of the value it started the year with, perhaps a bottom is finally beginning to form.
"There is clearly downside in a more challenged economic environment that is bugging the rest of the sector, but for now we are heavily weighting our base case, and the upside case is one in which the liability outcomes are negative but not as negative as we have presented," Tusa concluded. "The risk/reward is now more balanced in the near term, in our view, and we recommend investors step aside."