GE Stock Prices: Are They Worth the Investment?
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The adjusted shares of the General Electric Company (GE) division began trading in August 2021. A month earlier, GE had completed a 1 for 8 share split. This share split increased the number of shares. outstanding GE available, which consequently affected the share price.
GE’s earnings after earnings on October 14, 2021 were $ 102.74 per share. The stock opened at $ 103.14 and closed at $ 102.74. With a volume of 6,140,944, GE’s market activity reached a high of $ 103.65 and a low of $ 102.37.
Was GE’s Reverse Stock Split a Bad Idea?
On June 18, 2021, GE announced a 1 for 8 stock reverse, proportionately reducing the number of shares of its common stock. Common shares were valued at $ 0.06 per share issued under the certificate of incorporation and subsequently reduced in par value to $ 0.01 per share.
The shareholders had previously approved the reverse stock split at the annual general meeting of shareholders on May 4, 2021.
Reverse stock splits are commonly used by small cap companies to meet listing requirements and make them more affordable for individual investors. GE’s 1-for-8 stock split caused a media frenzy because the tactic was unusual for such a large company. This new strategy may have been part of new CEO Larry Culp’s leadership model.
Why did GE do the Reverse Stock Split?
First of all, what is a reverse stock split? A company performs a reverse stock split to exchange a fixed number of existing shares for a smaller number of new shares. Initially, the new shares are priced higher, but there are fewer shares to offer for sale.
Recently, GE divested several of its businesses, including Oil and Gas, NBC Universal and GE Capital Aviation Services, or GECAS. Shares were not proportionately reduced during these divestitures, leaving the company with nearly 8.8 billion shares outstanding, far more than its industry rivals.
How Will the Reverse Stock Split Affect Future Profits?
After the reverse stock split, there will be fewer common shares outstanding. This will increase the net income or loss per share and the amounts per share of the common shares. The retroactive effect of the reverse stock split will be adjusted in the financial statements published after the entry into force of the reverse split. Since the August 1-8 reverse stock split, GE’s stock has risen 5.4%.
Market Analyst Reactions to the Reverse Stock Split 1 in 8
Market data research expert FactSet interviewed a group of 20 financial analysts, including Stephen Tusa of JP Morgan and Jeffrey Sprague of Vertical Research Partners. The survey found that nearly all analysts have raised their GE division-adjusted price targets to just below current levels.
Tusa says that despite the high expectations of GE stock, its intrinsic value is limited. GE shares managed to avoid a massive sell-off in the market this week despite Tusa increasing its price target by 38%.
Additional impact of the Reverse Stock Split
GE has spent over $ 350 million per year to sustain its dividend, even at the low price of $ 0.01 per share per quarter. Although cash flow has improved recently, dividend payouts still only represent about 10% of GE’s operating cash flow. By reducing the number of shares to 8, GE management has the opportunity to reduce dividends by the same amount and maintain $ 0.01 each quarter.
How will investors react to the Reverse Stock Split?
Institutional investors are more inclined to follow minimum market capitalization, sectors, liquidity and governance. Shares of GE would likely be included in index funds following the S&P 500 whether traded at $ 1 per share or $ 100 per share. Some funds even target low-cost stocks.
Conversely, retail investors may change their behavior towards GE, as some have come to believe that the stock price is important. Since individual investors generally have less money to invest than their institutional counterparts, buying large amounts of stocks can be more difficult.
Overall, the impact of the GE stock split varies among investors and their beliefs, but reduced volatility may have the greatest impact due to more expensive lots.
GE Market Performance Snapshot
Over the past few days, GE stock edged up 0.2% at midday. The stock then climbed 5.4% after the 1 for 8 stock split. See the Google Finance market snapshot below.
A highly respected voice in the financial industry, JP Morgan’s Tusa further confirms his neutrality vis-à-vis GE. He cautions his customers that GE is not selecting measurable factors well due to high expectations for an increase in earnings before interest, taxes, depreciation and amortization – EBITDA – in the third quarter.
Should you buy, sell or hold your GE shares?
Not so long ago, GE was heavily in debt, and bankruptcy rumors spread throughout the industry. Former short-lived CEO John Flannery chose not to reduce the quarterly dividend to $ 0.01. In hindsight, some believe that a reverse stock split could have saved the conglomerate millions of dollars at the time.
Fast forward to 2021, GE manages its debt and has a positive cash flow, largely thanks to the reverse stock split.
According to GE, the share split has been a major player in the transformation of the business, producing a stronger balance sheet, an offensive market change and a significant improvement in orders. The stock reverse could very well be the turning point in GE’s market, but it likely won’t be the cause.
Current and future perspectives
Today, GE stock is at the top of a broad horizontal trend. Normally this is a good opportunity to sell. However, a breakout on the trendline above $ 106.93 is a strong buy signal, causing a trend change.
With this current horizontal trend, you can expect a 90% chance that GE stock will trade between $ 97.22 and $ 107.62 at the end of the quarter.
Typically, a break in this horizontal trend is followed by a sharp increase in volume. Stocks generally do not rise directly from the bottom of an uptrend. The best potential runners are stocks that are in the middle of a horizontal trend.
Stocks must be within a particular buy range. Look for stocks of a company with strong fundamentals when buying. The purchase point for GE shares is $ 105.51. However, the stocks are well below the entry and the Relative Strength Line, or RS, is not inspiring.
Currently, GE is trading higher than its 2019 levels. Review of the company’s earnings, however, suggests that the stock price is expected to be lower than 2019 prices. See the table below to compare GE’s main businesses.
|Revenue (billions)||Q2 2019||Q2 2020||Q2 2021|
|Aviation||$ 7.9 billion||$ 4.4 billion||$ 4.8 billion|
|Health care||$ 4.9 billion||$ 3.9 billion||$ 4.5 billion|
|Power||$ 4.7 billion||$ 4.2 billion||$ 4.3 billion|
|Renewable energy||$ 3.6 billion||$ 3.5 billion||$ 4.0 billion|
The third-quarter FactSet EBITDA consensus is $ 1.84 billion, up from $ 1.01 billion last year. This would be the highest total since the fourth quarter of 2019.
Since new CEO Larry Culp took command of GE, profit margins and orders have improved, creating a foundation the company can build on for the future.
Expect to see GE’s third quarter results after October 14 before the opening bell on October 26. After GE’s second quarter report, the company is expected to achieve less than 2.5% leverage over the next three years. Analysts predict that if GE does not meet its high expectations, deleveraging will fail and risks increase.
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