Industrials

Should GE Shares Have Fallen 10 Straight Days?

When you get into crazy markets, sometimes logic and sensibility have to be thrown out the window. General Electric Co. (NYSE: GE) is far from an economically immune company. The company’s turnaround has been long and painful, and CEO Larry Culp’s tenure has not come with its own bumps and bruises even though he is a very well respected CEO with a solid history. GE’s shares have now fallen for 10 consecutive days.

The outbreak of the novel coronavirus hit literally right after trade was supposed to be picking back up as it was just days earlier that the U.S. and China signed their phase-one trade pact. Is more than a 21% stock drop in two-weeks, even in a violent and down market, a fair assessment? The last day that GE closed up on the day was February 12, 2020 at $13.16, the following day it fell to $12.85 and shortly before the closing bell on February 27 it was down about 2.2% at $10.70.

Where things get even more interesting is that GE shares closed out 2019 at $11.16. That means it was just one day ago when GE closed at $10.95, after a $11.32 close the prior day, when GE shares went negative year-to-date even though the Dow was approaching a 10% correction from its peak.

It was just back on February 19 that CEO Larry Culp outlined its cash burn rates from the 737 MAX issue and seemed to talk down the exposure to even higher losses in the long-term care insurance that has plagued the company. GE’s issues around power have also been well known, but Culp even defended GE there and talked up the range of cash flow from industrial operation in 2020.

There were other issues to consider far beyond the biosciences sale to Danaher Corp. (NYSE: DHR), where Culp was running the show prior to taking over the helm at GE. With the woes of The Boeing Co. (NYSE: BA) and its 737 MAX fleet grounding and more recent manufacturing halts.

There were headlines on Thursday that Boeing has reached a deal to cover 2020 engine payments for the GE-Safran joint venture to ease the burden for the U.S. and French companies. Boeing had been producing about 40 of the 737 MAX planes per month before curtailing and then halting production, and the aviation industry was running out of places to store the grounded planes. This would seem to relieve at least some pressure for the industrial companies.

A March 4, 2020 investor meeting is expected to be the next major event for GE shareholders. The company is expected to clarify its guidance for 2020. Its last formal guidance was calling for earnings of close to $0.55 per share and for the conglomerate to produce roughly $3 billion in fiscal year 2020 cash flow. That last guidance, and the update from earlier in February, were not entirely naive of the coronavirus outbreak in China, but they did not include the current coronavirus woes that are growing as more cases are being highlighted in the United States and the outbreaks in other nations are becoming much more widespread.

BofA Merrill Lynch had been the most aggressive firm on Wall Street with a street-high target shortly after GE’s earnings report. That was before the height of the coronavirus and was certainly before things started getting this bad in the United States.

The question may need to come back up as to whether or not GE’s analysts need to trim their annual expectations based on the slowdown that has been seen so far. Sadly, GE and other companies may also not have any better visibility into the real outlook for all of 2020 any better than the rest of us. After all, they are at the mercy of the economy and at the mercy of what happens under this COVID-19 outbreak just like the rest of us.

GE’s 52-week trading range is $7.65 to $13.26 and its Refinitiv consensus analyst target price was $12.89 on last look.