Entering text into the input field will update the search result below

Did GE Just Bottom?


  • GE dropped below $14 this week.
  • Is the company in as dire shape as the share price suggests, or could the illusive bottom finally be in sight?
  • A breakdown valuation of GE's various units suggests a significant disconnect between the company's enterprise value, and the assessed worth of its businesses.
  • GE's problem is one of management, but there are some encouraging developments.
  • Ultimately, the stock could stabilize in the near future, and market participants could bid the shares up aggressively into year's end if several elements materialize.

Source: DaytonDailyNews.com

General Electric (NYSE:GE) dipped below $14 this week, seemingly for the first time since 2009/2010, a time when the company was just beginning to climb out of the messy financial crisis. I think it’s noteworthy to mention that back then there was a freeze-up in the financial system that threatened to prevent the flow of liquidity to GE. This scenario would have essentially resulted in a bankruptcy for the company if credit was not made available immediately. Aside from this moment in history, you would have to trace GE’s price back all the way to early 1996 to see the company trading at a comparable price. So, is GE in as dire shape as it was amid the financial collapse? Or is the stock finally trying to put in a bottom as it tests the nearly decade-low $14 level?

Source: Nasdaq.com

Although it is difficult to point to an exact price when the stock may hit a long-term bottom, I am convinced that this point is not far from the current price. GE has extremely valuable businesses, and the current crisis the company is experiencing is one of confidence, perpetuated by years of mismanagement. Much of the negative news is now baked into GE’s share price, and any shift in news flow to a more positive tone should result in a higher share price for the company. Moreover, there is a price point at which prominent investors will begin to recognize significant value in the company, and could begin to acquire substantial stakes in the company. Furthermore, a valuation breakdown of GE suggests the stock is trading at a significant discount to the underlying value of GE’s businesses.

So, How Bad of Shape is GE in?

There is no denying it, GE has seen much brighter days. The company is going

To receive real time updates, and get more information about this idea as well as other topics, please visit the Albright Investment Group trading community. Join us and receive access to exclusive content, trade triggers, trading strategies, price action alerts and price targets. These value-adding features are available only to members of our trading community, and are not typically discussed in public articles.

This article was written by

Victor Dergunov profile picture

Victor Dergunov is an independent investor and author with 20 years experience. He preaches diversification and shares investment ideas across all market sectors. Victor aims to help readers build portfolios that perform well in all economic conditions.

He runs the investing group The Financial Prophet where he covers all market sectors and shares strategies for well-diversified investing. Features include: the All-Weather portfolio, trade alerts, technical analysis, daily reports with his latest updates, covered call strategies, and direct access in chat. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (300)

rnn profile picture
Name something creepy that makes people scream...
JC, the article I read on the disposal of lighting had GE selling part of lighting to a former employee who managed the international business for somewhere around a billion dollars. The rest is apparently up for sale and , I believe, estimated as valued at another billion. The former employee heads a group that, I believe, bought a part of lighting.
Michael Clark profile picture
Victor: you have called GE bottoms twice (I think) and have been wrong. What do you use to call your bottoms? I hope not "gut feelings".
James Coleman profile picture
ya think?
Gotta be some sleepless nights these days for the fine folks over at KPMG.
James Coleman profile picture
"It's the GE Way"
I have read about the break-up value of GE being below $12. And the board is full of a bunch of idiots that are over the hill and clueless. Jeff Immelt should have been fired for cause and sued to prevent any termination clause of his contract from being fulfilled. GE has enough lawyers to make it tremendously expense for Immelt to fight it and he was clearly liable for gross violations of his fiduciary responsibilities. I have never heard of a single CEO in the world flying with a backup jet, the entire board should have been canned for participating in this debacle. It is time to break up and sell the parts for the sake of the shareholders. The shareholders need to file some class action lawsuits to rid themselves of the board and to target Immelt, and GE replaced Immelt with Flannery, an insider? On what world does that make any sense?

'Idiots' wouldn't personally be making bank for decades running the company into the dirt.

The word you're looking for is 'grifters'.
A news outlet reported several weeks ago that Jack Welch is so upset with what's happening to GE, and the way Immelt ran it, that he can't bring himself to give an interview. Others say the problems date back to when Welch was with GE and that Immelt worked with the bad hand he was dealt. If true, this could explain why Welch won't talk. On the other hand, Welch hasn't been CEO since 2001. Hard to look back 17 years to try and blame a former CEO/Chairman. Supposedly, finger pointing between the prior two CEOs behind the scenes. Would like to hear Welch talk publicly on GE's situation.

50+ Quarters (?) beating analysts estimates by a penny tells me 'the magic' didn't start with Jeffy & The Jets.

Welch will probably be making a statement in the near future that starts something like this:

'Under advice from my counsel . . . '
SEC news won't be good. Still any upwards price will be used as a way to short more stock.

to much uncertainty for a bottom.

no support below 14.27

we are in the perfect short storm still
Rob Marstrand profile picture
If the 48 cent dividend doesn't get cut further (a big if), and if the mature industrial businesses can eventually grow around 4% a year (another big if), and if investors will accept a 9% return (personally I'd want a lot more, given the risks), there needs to be a 5% divi yield, which points to a price of $9.60.

Put another way, if eventual growth is 4% and the divi is 48 cents, then the divi yield on current price $14.42 is 3.3% and investors can expect a modest total return of 7.3% a year.

This still looks like it has plenty of downside, into single digits.
Not sure what didn’t work relative to management not getting bonuses. I think Immelt got a big bonus for completing the Alstom acquisition. Oh, by the way many analysts thought buying back stock was a good idea. In fact the big corporate raider thought it was a good idea to borrow money to buy back more stock. I don’t know how many SA articles I read and many comments about how the money spent buying back shares was a return to stockholders. Never really bought it unless it either made the stock go up or increased the dividend or more importantly had no other better potential opportunity to invest in a more promising product development or acquisitions.
joegillam profile picture
General Electric is an old, broken down, man. Lived a rich life and generated a lot of debt. Did not take care of himself for retirement. Bought junk that has been a cash flow disaster. Sells his things to keep his nice house. And can't get it up any more (the stock price, of course). I soon expect him to get kicked out of the Country Club (DOW), and settle into a nice rest home and not be heard from too much in his twilight years.

Joe In Georgia
Tommyboy918 profile picture
GE is leading the Dow today.
rnn profile picture
Good than sell but you loss from 24
James Coleman profile picture
Up .30 on a tad less than average volume.

Did Immelt get a ticket or something?
To James Coleman -

GE up +2.1% while the DOW is +1.4%......it's likely to be (partially) due to the possible interest that a Chinese company has in buying the rest of GE's lighting business. As you've posted above.
James Coleman profile picture
Old Wiz:

The GE buyback strategy was really Unwise.

In my view it was an abortive attempt to prop up the stock price by meeting/beating the #'s.

Not only did it not meet its objective, but it was a colossal squandering of cash, which GE could little afford to do.

But the powers that be went for the "Hail Mary" and it was incomplete.

It would be foolish of Flannery to buy back any stock now, as you stated.
franklja profile picture
Fully agree JC. When 2 Jet Jeffy was the quarterback he got really desperate and started throwing "Hail Marys" to try to make the numbers. Hopefully Flannery is a smarter quarterback that has learned from Jeffy's mistakes.
Looking back on it, it becomes somewhat understandable why GE did so many stupid things. They knew of the hidden landmines in the GE Capital black box. They could not allow the added regulated scrutiny of being too big to fail because it would all come out. There is no rational reason why they could have expected to sell off assets representing ~50% of revenues and have the stock price and dividend remain the same. Instead of selling assets and giving the shareholders a fair share of it along with an adjustment of the outstanding shares, they wanted to use the monies to get out from the multiple messes that were simmering there. They went deep figuring they could buy back enough shares to bring the dividend back into a reasonable % range, pay off the hidden liabilities and, by the way, allow management to keep hitting their numbers for bonuses. It did not work. The only part of the plan that worked is the part where ~50% of the assets were sold off and the shareholders got some crumbs.
franklja profile picture
jDram: I think you hit the nail on the head! I never did understand why GE was so scared of becoming a SIFI until all skeletons started coming out of the closets.
This analysis has some flaws, IMO. The segment valuations are applying public company Price/Earnings multiples against General Electric's EBIT (Earnings Before Interest and Tax). After deducting tax and interest expense, the valuation case unravels. You need to do the EV/EBITDA analysis, which suggests fair value at around $15, excluding the pension liability.

Due to the long term care insurance fiasco, the finance business is unlikely to pay a cash dividend up to consolidated entity through 2024, so most analyst are appropriately placing a zero value on the finance business. Thus, we only have ~$0.90 of industrial earnings and cash flow to cover the pension funding and dividend. There is not much left to fix and grow the business let alone survive a future financial crisis.

Towards the end, Immelt was desperate to keep the numbers going. My personal concern is that Immelt buried current operating lossess. How? Example: report a profit on a power turbine sale through an under-priced long term financing and/or service agreement. On the positive side, sentiment is so negative I think there will be sharp trading rallies that should be faded.
To hjk10025 -

I agree fully that this article has serious flaws in it.

I've previously posted and sent an e-mail to Victor Dergunov (author) on a prior article that he is grossly in error by confusing GE "Segment Profit" with GE "Net Earnings".

That is the same error in this article....see my post above on March 3rd.

Unfortunately Dergunov is too busy (??)...or too ignorant (??).....or too what??.....to update his article (and any future ones).

Or at least acknowledge what you (and I) have posted as the MAJOR analysis error that he continues to make. If he makes it in any future article, I will ask the SA staff to get involved.
Given GE’s cash flow and unfounded pension problems, buying back shares with repatriated cash doesn’t sound like a very good strategy to me. It’s okay for a company to buy back shares like Apple which has more cash than they can productively invest in new product development or facilities, but the GE buyback strategy wasn’t wise last year and be even more foolish this year.

2017 filing Still shows 35B parked overseas. Can any of this be expatriated and used to buy shares back at these low levels? They can reduce the share count by 2 billion shares, which should have a huge upside impact on the PPS.
To Steve Armatas -

1) The link you've provided is for data as of a year ago (March-17) and is outdated.

2) In the 2017 10-K (page 72) as of Dec-17, GE has $29.6 Billion in non-U.S. locations.

The 10-K statement is made "As a result of U.s. tax reform, approximately $10 Billion of non-U.S. cash can be repatriated without incremental U.S. Federal income tax."

3) IMO whatever cash is repatriated should be used for a "special dividend" to GE shareholders and internal business investment.......and definitely NOT for stock buybacks.
Well written article. I recall a couple of years ago there was a lot of talk that GE had a lot of cash parked overseas, around $135b. What ever happened to this overseas cash? Why nobody mentions anything about that anymore?
Any insight or info about this will be appreciated.
James Coleman profile picture
GE's contract assets go back more than 10 yrs. and are $27 Billion.

That 1 issue alone could keep every investigator in the Boston regional office busy
for the next 2 yrs. at a minimum.

The SEC is holding 90% of the cards.

As another SA poster said...is GE feeling lucky?
rnn profile picture
Warren said GE has way too many problems and to avoid.

The rest of the news was not so good. GE cut its 2016 and 2017 earnings and its dividend.. Their accounting change also cast doubts on GE’s prospects of meeting its guidance for 2018. The company lowered its earnings and will abolish the rest of their low paying dividend soon.

To add insult to injury, the U.S. Securities and Exchange Commission is looking into GE’s revenue recognition practices following the disastrous $6.2 billion charge related to the company’s insurance business. Fraud charges may be in store.
Warren Buffet bought stake in GE.. once this comes in the news, everyone will turn bullish on GE.
"Warren Buffet bought stake in GE"
whats your source?
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About GE

SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on GE

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.