ANALYST SEES DOWNSIDE AT GE

There shouldn’t be much debate about the fundamentals at General Electric Co., according to J.P. Morgan analyst C. Stephen Tusa, who believes they are more negative than envisioned a year ago.

Profits fell short of forecasts in 2016, and the company has implemented a “less-than-certain” cost plan intended to fill the growing gap in expectations through 2018.

Yet there is a bullish camp on GE, and many of these investors seem to like what the tax environment may look like for the company under a Donald Trump administration.

Specifically, Tusa noted the prospect of GE ending up with a tax rate as low as zero.

“While the core of the bull case has been that things have changed, we have always acknowledged that EPS could be higher than our estimates on the historically typical low quality controllable drivers: gains, GE Capital earnings and low tax,” the analyst told clients.

Tusa admitted that a zero per cent tax rate is not something he envisioned or thought possible “under any reasonable form of government.”

He noted that even at zero, the tax impact for GE is only slightly more positive than the average for its peer group, given the limited benefits from a tax repatriation.

“In the end, only time will tell, but we focus on the fundamentals, which we continue to believe will matter more than any one-time step up,” Tusa said, maintaining an underweight rating and US$28 price target on GE shares.

“Fundamentally, we see more downside than upside,” he added.