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CEO Contract Extension Should Bring Stability to GE Stock

Constant turnover at the executive level is almost never a good sign for a company. So, it’s perfectly understandable that investors were concerned when General Electric (NYSE:GE) CEO John Flannery only stayed at the position for 14 months. That’s not the sign of corporate stability that GE stock holders would like to see.

Any Way You Look at GE Stock, It's Impossible to Suggest Buying Here
Source: Pavel Kapysh / Shutterstock.com

High hopes, then, were pinned on incoming CEO Larry Culp when he took the position in 2018. Could he revive a floundering General Electric? Even prior to the onset of the novel coronavirus, the once-sprawling conglomerate struggled as it attempted to shift away from a diversified business model and into a role as a major manufacturer of aircraft parts.

General Electric appears to be surviving the pandemic, but it still has a tough road ahead. Thankfully, a recent development seems to indicate that Culp’s tenure at General Electric won’t end anytime soon. So, at least Team GE will have a consistent leader throughout these challenging times.

A Closer Look at GE Stock

Over the long term, GE stock has taken shareholders on a roller coaster ride. If you think of GE as a “safety stock,” think again.

At the peak of the dot-com bubble in 2000, GE shares briefly traded above $55. By late 2002, the stock priced around $22 a share. Seven years later, prior to the financial crisis, it was nearly $40.

GE stock’s third peak occurred in October of 2016, when the share price touched the $30 level. Less than two years later, it was booted from the Dow Jones Industrial Average after nearly a century. I suppose you could count the pre-pandemic 52-week high of $13.26, attained in February of this year, as a fourth peak for the stock.

Heading into September, GE stock stands at less than $6.40 per share and offers a measly forward annual dividend yield of 0.62%. Yet, Culp might be able to help General Electric improve on these numbers if he’s willing to stick around.

Counting on Culp

And indeed, as has been revealed in a Securities and Exchange Commission filing, Culp will stay the course with General Electric. The terms are a bit complicated, but evidently he will stay with the company at least until August of 2024.

This is a big change because prior to this development, Culp had only agreed to stay on board through September of 2022. We should acknowledge that, as you might expect, Culp stands to gain financially from his extended stay at General Electric.

Specifically, the executive may receive a substantial “one-time equity performance grant.” With this, Culp could earn upward of $200 million if the price of GE stock doubles during the contract’s term.

He’s in It to Win It

Moreover, a separate recent filing from the SEC indicates that Culp acquired 13.9 million shares of GE stock. Therefore, it’s safe to say that General Electric’s CEO has a sizable vested interest in the success of his company over the next few years.

Insider ownership of shares in a company is often viewed as a good sign. It shows real conviction in the company’s future. Investors should want to see that executive-level participants have some skin in the game.

I’m sure that Culp has already been working hard to turn General Electric around. For instance, he helped the company to shore up its financial position by selling a large portion of the company’s life sciences segment to Danaher (NYSE:DHR).

That savvy transaction garnered $21 billion for General Electric. It also helped to transition the company into a leaner, more-focused aviation-market business.

The Bottom Line for GE Stock

Now, Culp has not only a commitment to stay with General Electric, but a personal financial incentive to engineer the company’s success. And if he’s super-motivated, then perhaps GE stock holders should be, too.

There’s a lot riding on Larry Culp now as he will be the face of General Electric for a while longer. But that’s not a bad thing as GE stock’s success rests in the hands of a capable CEO with a powerful incentive to turn the company around.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/ceo-contract-extension-should-bring-stability-to-ge-stock/.

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