Why Did GE Stock Decline This Year?
What can investors expect moving forward?
After a healthy December (2017), investors expected GE stock (NYSE: GE) performance to go from strength to strength in 2018. Unfortunately, we didn’t see GE stock make the gains that many expected it to, this is due to a series of challenges that investors have blamed Jeff Immelt (GE’s ex CEO) for. The general consensus amongst investor groups is that GE’s former CEO, Jeff Immelt, is to blame for General Electric’s poor performance. Immelt left GE in August 2017, and was replaced by current CEO John Flannery.
We saw GE stock dividend cut by 50%, which wasn’t met with a warm welcome from investors. Despite scrutiny to keep its dividend the same, GE needed to cut its dividend payouts to put the company in good-stead. This dividend cut sent income-focused investors running, causing selloffs that dropped GE stock price significantly.
Then GE stock had some luck and began trading in the high-teens. The gains did not last long as GE stock experienced sell-offs in Mid-January after Flannery announced that the company had been met with a $6.2 billion insurance charge.
After the insurance charge was issued, things went downhill for GE stock, fast.
General Electric Stock Performance
Analysts first started to see GE shares slide back in 2017, although some of the company’s fundamental challenges began as far back as the 2008 financial crisis. During the financial crisis of 2008, GE Capital, the financial services department of the company was dealt a heavy blow.
Then in 2014, General Electric was met with turbulence in their oil and gas division as oil prices fell.
Moving on to 2017, oil prices were up but the company suffered from poor market-performance with its gas turbines. Due to the weak performance in the gas turbines industry, GE cut its dividend. All of these issues have taken their toll on investor confidence, causing selloffs along the way and slides in the GE share price.
Fast forward to today and we are still seeing some of those problems still taking their toll on GE. The $6.2 billion insurance charge from January was arguably the biggest problem of this year. Although, the bad news doesn’t end there. GE Capital will need to allocate $15 billion within the next seven years to fund the liabilities brought up in the insurance charge. In short, this means that GE Capital will not be able to help fund the GE stock dividend payouts to its investors. And yet the bad news continues.
News then became public that GE was under investigation from the SEC because of the insurance charge and its revenue recording system. GE then said it would be re-recording two years of its financial reports. To finish, GE then said that it would be posting lower revenue in Q4 (2017) and that it would be making a net loss for the same quarter. This is all within January 2018 and before.
Can General Electric Stock Make A Comeback?
Since December 2017, GE has made some improvements to its business. However, the fundamental problems which deter investors are still as prevalent as ever. GE boasts a healthy aviation business and a strong healthcare business, although the gains made by these two divisions are often offset by the poor performance of GE’s other businesses and its huge debt pile. Over the year we have seen GE stock fall by 61 percent, losing over 33 percent after its Q3 report in October.
Despite significant selloffs this year, we are yet to see if GE stock price has reached its bottom. Looking up, Flannery seems to have a clear plan on how GE can start to make gains again. GE’s plan to exit many of the smaller/under-performing businesses and focus on the aviation and power sector as the primary businesses.
In conclusion, we expect GE shares to remain volatile until these past issues can be fixed. It will take the company a long time before we can expect to see consistent gains and GE investors should prepare for what could be a rollercoaster 2019.