General Electric Company (GE) shares fell more than 7% during Monday's session after JPMorgan downgraded the stock from Neutral to Underweight and cut its price target from $6.00 to $5.00 per share. With the stock nearly 40% higher so far this year, analyst Steven Tusa believes that investors are underestimating the severity of the company's challenges and underlying risks, including its high leverage and vulnerability to liquidity issues in a recession.
Tusa believes that other analysts are "significantly" overestimating GE's free cash flow improvements in coming years, while renewables and aviation fundamentals remain weak. Last week, the company experienced several large put spreads in the options market that suggested traders were turning bearish on the stock – predictions that turned out to be uncannily accurate following Monday's downgrade.
Other analysts are less bearish on GE stock. In late March, Barclays analyst Julian Mitchell said that the company's free cash flow outlook was "battered but largely intact" and hoped that the company would consider "all options" to de-risk GE Capital. The analyst maintained an Overweight rating and a price target of $13.00 per share, reflecting a modest premium to the current market price of around $9.30 per share.
From a technical standpoint, the stock broke down from a symmetrical triangle chart pattern to trendline and S1 support near $9.17. The relative strength index moved closer to oversold territory with a reading of 37.40, but the moving average convergence divergence (MACD) remains in a bearish downtrend. These indicators suggest that the stock could see a little more downside before hitting support.
Traders should watch for some consolidation around S1 support at $9.17 or S2 support at $8.34 over the coming sessions. If the stock rebounds from S1 support, traders could see a move toward pivot point, 50-day moving average and trendline resistance near $9.85. If the stock breaks down from S2 support, traders could see a move to retest lows made late last year at around $6.50.
The author holds no position in the stock(s) mentioned except through passively managed index funds.