Short Sellers Piled Into General Electric and the Payoff Is on Its Way

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For the two-week short interest reporting period from December 29 to January 12, short interest in General Electric Co. (NYSE: GE) rose by 28.67 million shares, or 25.4%, from the prior reporting period. What drove the short sellers?

GE’s share price rose by 7.5% during those two weeks, partly due to investors who might have believed that the stock’s closing price of $17.45 on December 29 was about as low as the stock would go. At the close on January 12, GE shares were priced at $18.76.

Then the bottom fell out. After markets closed on Monday, January 16, GE revealed that it would take a $6.2 billion after-tax charge on its wind-down of GE Capital’s reinsurance business. Shares posted a 52-week low of $15.80 on January 22.

In the first week of the year, GE was the best performing Dow Jones Industrial Average stock, posting a gain of 6.25% for the week. But analysts just couldn’t get a handle on where the stock was headed. In our 2018 bull/bear case for GE we noted:

The broader S&P 500 was valued at 18.5 to 19.0 times expected 2018 earnings per share. GE ended 2017 valued at closer to 17 times earnings, but that is without considering all the abnormal issues around restructuring and asset sales. The reality is that GE could currently be valued at just 13 times earnings, or it could just as easily be valued at 25 times earnings. The market just won’t have a better handle on what its real value is until more of the asset sales are seen and more of the future business is quantifiable.

Well, what investors have seen so far this year is not much. The company reported results Wednesday that boosted shares a little before resulting in a daily loss of 2.7%.

Short interest in GE now totals 141.51 million shares, about 1.6% of the company’s float. It would take investors two days to cover all short positions.

Shares traded down almost 2% early Thursday’s at $16.31. The stock’s 52-week range is $15.80 to $30.59, and the 12-month consensus price target is $20.71.