The analysts got it right and the CEOs got it wrong


General Electric’s troubles have been followed by many, but two Wall Street analysts have correctly called the industrial’s prolonged downfall every step of the way, CNBC’s Jim Cramer said Thursday.

Stephen Tusa, an analyst at J.P. Morgan, and John Inch, a Gordon Haskett analysts formerly of Deutche Bank, “have been negative on GE for ages now, and they have been relentlessly and painfully right,” Cramer said on “Mad Money.”

“They nailed this story every step of the way, even when the company itself seemed to be totally clueless — or perhaps something even worse — about its own prospects,” he said. “Which is why you do need to take your cue from these two gentlemen and wait until the real problems they say are solved before you get bullish. And they sure aren’t there yet.”

Tusa, the original bear, resumed coverage of GE on behalf of J.P. Morgan in May 2016. He gave the stock an underweight rating and wrote a 235-page memorandum questioning its earnings and cash flow forecasts.

No other analyst joined Tusa in the sell camp for about a year, during which he warned of potential dividend cuts and said bullish analysts were far too optimistic about GE’s cash situation, Cramer said.

In May 2017, then-Deutsche Bank analyst John Inch got on board, adding to the negativity with a new theory: that even if GE ousted then-CEO Jeff Immelt, a new CEO would bring about new negativity because he would have to instantly lower Wall Street’s expectations.

Inch’s prediction came true when John Flannery took over in August 2017, setting off a series of increasingly negative news reports unraveling many of the positive stories Immelt had told Cramer in their February 2017 interview.

“This is when things really started to snowball for GE,” Cramer said. “In November of last year, Flannery held an analyst meeting where he did indeed cut the dividend and revealed some disturbing details about the core business, including the fact that GE’s dividend had been larger than its industrial cash flow for years. […] Turns out the bears were right all along.”

In 2018, Tusa and Inch dug deeper. They flagged GE’s ailing power business and underfunded pension liabilities as major concerns, and Inch predicted GE’s removal from the Dow Jones Industrial Average.

Meanwhile, GE kept proving them right. When GE pushed Flannery out and gave former Danaher CEO Larry Culp the CEO role, Tusa predicted another dividend cut and more multi-billion-dollar charges. Inch, now at Gordon Haskett, said GE could end up paying even more to fix its long-term insurance policy problems.

GE’s most recent quarter proved them right. Culp slashed the dividend to 1 cent and took a $22 billion goodwill impairment charge for the power business, which sent shares of GE into the single digits.

“Two weeks ago, Inch said he could potentially see the stock shrinking to $5, assuming that GE Capital doesn’t ultimately become insolvent,” Cramer said. “Now he’s talking about escalating liquidity risks. Then last week, Tusa cut his price target to $6. He thinks the real problem here is the fundamentals are deteriorating.”

So for investors wondering if and when the industrial giant’s stock will ever bottom, Cramer suggested looking to these two bearish oracles.

“The point here is that Tusa and Inch have nailed GE every step of the way, to the point where I don’t think this stock will be able to rebound until these two bears sign off on its turnaround plans,” the “Mad Money” host said. “And they sure haven’t done so yet.”

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