General Electric Company (NYSE:GE) made headlines on Monday when it announced that current CEO Jeff Immelt will be stepping down. Taking his place is John Flannery, the president and CEO of GE Healthcare.
The stock’s initial reaction was positive, rallying 3.6% on heavy volume. The shares have drifted lower since, although they continue to hold above the pre-announcement level.
Why Investors Cheered Immelt’s Exit
The former CEO was never a fan favorite of Wall Street. During his 16-year tenure as head of GE, Immelt guided the large conglomerate into new businesses while making the tough decision to exit others. But still, the stock was down 30% since he’d taken the reigns from predecessor and legend Jack Welch.
Investors were really pushed over the edge when Immelt recently stated that the company may not be able to achieve its 2018 earnings target. That had already been one of the reasons why GE stock was underperforming the S&P 500 by 20% in 2017.
It was clear that a change needed to be made, and Immelt’s departure is a sign to investors that GE is ready to move further into the technology revolution — a trend I like to play in my NexGen investing services.
In fact, this move is not dissimilar to the removal of Ford Motor Company’s (NYSE:F) CEO a few weeks ago. These old stodgy companies are finally coming around to the realization that if they don’t start looking ahead and adapting to the world of the next generation, they will continue to see their share prices greatly underperform.
Bottom Line on GE Stock
Now the big question is this: What will happen to General Electric’s company structure and stock price under the new leadership?
Unfortunately, I don’t think much. Flannery isn’t new to General Electric — he’s been with the company for three decades now — so I don’t see any earth-shattering changes taking place in the coming months.
And without those kinds of adjustments, I don’t expect the stock to do anything more than keep puttering along as money flows into companies that have a better vision laid out for investors.
In time, I do believe General Electric will get back on track and finally reward shareholders, and there’s always the possibility that Flannery gets the ball rolling in the right direction. However, I don’t think that time is now.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.