The downward spiral in General Electric (NYSE:GE) stock has nothing to do with a change at the top. John Flannery took over General Electric from ousted CEO Jeff Immelt in August. Since then, GE stock has done exactly what it did prior to Flannery’s arrival: sink like a rock.
At around $24, GE is at a two-year low — and is fast approaching a four-year low. With low top- and bottom-line growth expected both this year and next, and no obvious catalysts on the horizon, General Electric stock may still have new depths yet to plumb.
GE Stock Could Drop Below $24
Having shed its banking business (GE Capital) and in the midst of selling its signature lighting business, General Electric has a bit of an identity crisis. It wants to be an industrial conglomerate with a focus on tech, but it’s more known for things like aviation, oil and gas and healthcare. In essence, GE has become the proverbial “jack of all trades, master of none.”
You can blame that on Immelt. After all, in Immelt’s nearly 16 years at the helm, GE stock lost more than a third of its value, at a time when the Dow Jones Industrial Average more than doubled. Sixteen years of that kind of drastic under-performance is a difficult trend to reverse, even with a change at the top.
Flannery has said all the right things since taking over, vowing improved focus on customers and better execution on cash and margins. Part of his plan to improve focus, it appears, is downsizing. According to Reuters, the company intends to “significantly reduce” corporate staff in an effort to cut $2 billion in costs by the end of 2018.
To date, none of Flannery’s initiatives has slowed what is now a nine-month slide in GE stock. Cost-cutting is a pragmatic and responsible approach — and selling the under-performing lighting business should also help shore up some sorely needed cash — but it’s not sexy. It’s not the type of thing that excites investors or inspires a sudden wave of buying into a stock that has seen its institutional ownership reduced to 56.6% from 64% in the last year.
The good news is that sales, though slow, are expected to improve this year, which would mark the first time the company has pulled off back-to-back years of annual revenue increases since before the recession. Profits are also expected to improve for a second straight year.
Slow growth is better than no growth.
Glory Days Over for GE
A return to growth could stop the bleeding for GE. But barring a major earnings surprise or two, I doubt it will spark a complete about-face in the stock. On today’s Wall Street, investors like to see innovation, ideas, revolutionary products — the kind of thing General Electric used to specialize in a decade or two ago. Because of those innovations and stellar growth, GE was one of the premier stocks on the market in the 1990s, making the quantum leap from $5 to nearly $60 by the turn of the century.
Since then, and especially in the last few years, investors have ditched GE in favor of today’s more prolific innovators — companies like Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) and Netflix (NASDAQ:NFLX).
Even with GE under new leadership, I don’t expect that to change anytime soon.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.