GE's Dead Stock: A Board In A Bind

Jeff Immelt, GE’s (GE) CEO, recently said that he was "frustrated" by the performance of the company’s shares. According to The New York Times: "Shares of G.E. have declined 5.8 percent this year, while the broad Standard & Poor’s 500-stock index has risen 4.7 percent." The company’s PE for its forecast 2007 profits is no better than the index.

GE’s stock performance of the last five years is even worse. The stock is up 10% against a gain of almost 35% for the S&P. GE’s board is not going to get rid of Immelt. The company did make the top spot in the Fortune "Most Admired Companies" list.

Oddly enough, GE directors who are CEOs of other companies run operations that have not done so well in the stock market themselves. The head of Procter & Gamble (PG) is on the board. That company has done no better than the S&P over the last five years. The same is true with Avon (AVP) whose CEO sits on the GE board. The CEO of Deere (DE) is also on the board, but his stock has done exceedingly well.

Wall St. would think that the GE board could see the company’s problems and help fix them.

Profits at the company’s Infrastructure business are the same as they were in 2002. The segment profit for the entire company is up 45% for the same period. That doesn’t seem very good. At the Industrial division, profits are up about the same as for all of GE from 2002 to 2006, while the remaining four divisions have done better than the company as a whole.

Maybe the board knows something that investors do not, but it would appear that there are some underperformers in the company portfolio. GE is trying to sell its plastics operations, but it appears that the problems run deeper than that.

GE does not have to do this badly. Rival Siemens (SI) with all its management resignations and scandals is up 100% in share price over the last five years.

Disappointing for GE.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.