The news at General Electric Co. (NYSE: GE) still seems to be in a state of “bad” or “worse.” The news flow has not even gotten up to a “less bad” state yet. Now GE may be facing a further blow to its reputation, and it’s something that John Flannery may not want to have on his exit resume when he retires or leaves as GE’s chief executive officer.
GE may get kicked out of the Dow Jones Industrial Average. While the Dow is now an antiquated stock market index, and while the Dow’s calculations and composition have been questionable over time, no one inside of GE wants to see the company kicked out of the key index that the public still refers to every day.
Deutsche Bank analyst John Inch is joining the fold of professionals who believe the index may be closer to kicking GE out of its ranks. GE has been a Dow component since it started well over 100 years ago, and it is currently the only original member left.
According to Deutsche Bank, the firm thinks GE’s chances of being booted out of the Dow are increasing as the conglomerate continues to have mounting challenges. One serious issue is that GE has now endured two dividend cuts, and only one of those dividend cuts was during the recession. The most recent was at a time that the economy is seeing rekindled growth.
Another driver behind the expected cut is that GE is still planning on trimming its assets. It is on target, at least the company says so, to sell of another $20 billion or so in assets. And GE also recently disclosed that the U.S. Securities and Exchange Commission (SEC) was looking into its massive charges tied to long-term care insurance.
If GE gets booted out of the Dow, it will be an isolated reputational hit for GE rather than a blow to the broader market itself.
24/7 Wall St. looked further into this possibility that GE could be ousted from the Dow. Sadly, this is not the first time we have pondered the conglomerate’s future in the Dow (or as a standalone entity).
The Dow’s daily index calculations are based on each of the 30 components’ share prices. Almost all other indexes use a market cap-weighting rather than a share-price weighting. With a share price of close to $16, GE’s weighting in the Dow is now down to less than 0.5%. You could almost blow GE out of the index and no one would even know it — if you operate in a vacuum. GE now has the eighth lowest market cap of all 30 Dow stocks.
GE still matters more in the S&P 500 Index than in the Dow. That being said, its market cap is down to about $138 billion, after having lost more than $125 billion in market value over the past year or so. GE is now ranked 40th among the S&P 500 by market cap. The market cap of closer to $260 billion a year ago would have it ranked today as the 15th highest weighting in the index.