GE analyst Steven Tusa over at JPMorgan thinks shares of the industrial giant deserved to be hammered.
"We think that, on consensus numbers, the stock is overvalued by ~20%, with more substantial downside based on a more come complete accounting for liabilities which compound should there be a shortfall to an optimistic consensus," Tusa wrote in an extensive new research note to clients on Tuesday.
The closely watched analyst reiterated a $55 price target on GE, representing downside risk of about 47% from current levels.
GE shares fell 2% on Tusa's commentary.
The stock is up 18% year-to-date, compared to a 16% return for the S&P 500 as traders bet GE will benefit from the global economic recovery and its cost-cutting efforts under CEO Larry Culp.
Under Culp, GE has focused on lean manufacturing initiatives to slash costs and produce higher quality, more profitable products. In turn, GE's cash flow trends have improved in recent quarters.
But Tusa warns investors should be cautious on GE right now.
Explains Tusa, "GE is operating through a difficult period, born from a combination of over a decade of leverage-related issues that, combined with challenged end markets and intensified competition, have left the company with significant liabilities and little free cash flow to support. The company has undertaken major portfolio moves to de-lever as a response, further diluting future fundamental levels of earnings and FCF. Management to its credit delivered on better than expected free cash flow in 2019, but we believe incomplete guidance is keeping a persistently optimistic Street from resetting, making the stock look cheaper than it is using published consensus."
Tusa added he continues to see "structural concerns" in key power markets and now "structural weakness" at GE's aviation business.
GE is slated to report third quarter earnings on Oct. 26.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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