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Is the Turnaround in General Electric Stock Finally Over?

InvestorPlace logo InvestorPlace 5/5/2021 InvestorPlace Staff
a sign on the side of a building: Image of General Electric (GE) logo on the top of a corporate building with clear blue sky in the background. © Source: JPstock/Shutterstock.com Image of General Electric (GE) logo on the top of a corporate building with clear blue sky in the background.

General Electric (NYSE:GE) is one of America’s largest and oldest companies, with a history dating back to 1892. A lot can happen in that time. GE stock has gone through some major cycles over the decades.

a sign on the side of a building: Image of General Electric (GE) logo on the top of a corporate building with clear blue sky in the background. © Provided by InvestorPlace Image of General Electric (GE) logo on the top of a corporate building with clear blue sky in the background.

We are in the midst of one of those now. After losing 83% of their value over the course of four years, GE shares stabilized last summer, then began to climb. GE stock is now up 120% over the past seven months. It has posted growth of 25% so far in 2021.

The question is, how long will this turnaround last?

That really is a key question. Because despite its recent gains, GE stock is worth a fraction of what it was just five years ago. At this time in 2016, a share of General Electric was worth nearly $30. If GE stock is heading back toward that level, an investment now (at $13.10) will deliver a nice return. But if this is a blip, you risk getting burned.

There have been more than a few false starts in recent years and even in 2021 there have been worrisome signs — including its largest single-day drop in nearly a year.

Worse Than Enron

General Electric’s most recent round of problems hit a low mark in 2018 and 2019. They culminated in a whistleblower report that exposed accounting and financial problems within different GE business units. The report claimed to have uncovered at least $38 billion in fraud dating back to 1995. The report accused General Electric of being “a bigger fraud than Enron.”

By the time the whistleblower report was made public, GE stock had been on a dramatic, two-year slide. Between 2017 and 2018, the drop in GE stock value wiped out over $20 billion in shareholder value.

Is the Turnaround Working?

General Electric undertook to turnaround its business, along with its stock. Hiring an outsider CEO, the company began taking measures that were beginning to show results before the pandemic hit complicating the situation. In the third quarter of 2020 when analysts were expecting a 4 cent loss, GE delivered surprise earnings of 6 cents per share. This was despite the pandemic seriously impacting the company’s jet engine business. A series of analyst upgrades helped the growth of GE stock.

However, General Electric’s turnaround has been on more shaky ground in 2021. In March, GE stock suffered its largest single-day drop in nearly a year when its annual Analyst Day resulted in mixed reactions. Announcements like its $30 billion plan to merge its aircraft leasing business — unloading debt in the process — worried some, given GE’s recent brush with accounting issues.

Other analysts were concerned that GE’s recent moves, which also included selling off its biopharma business, were poorly timed.

In a CNBC interview after the aircraft leasing deal was announced, Joule Financial’s Quint Tatro commented: “General Electric keeps shedding businesses, albeit with good intentions to shore up that balance sheet, but they’re doing it in sectors and environments that are finally turning around … So they’re selling business that I think they could be benefiting from.”

Bottom Line on GE Stock

Looking at how analysts in general rate GE stock shows a generally optimistic, but cautious view. Among the 21 investment analysts polled by CNN Money, GE stock is a narrow consensus “Buy.” The median price target of $15 offers over 14% upside.

Even the most bullish price target is just $18, though. In other words, analysts do believe that GE stock will continue in recovery mode. However, no-one is expecting the pace to ramp up.

The bottom line on General Electric? GE is a huge multinational conglomerate that has gone through some challenging times. The company is in turnaround mode, and there are positive signs that it’s working. However, not everyone is sure about the company’s strategy and that has stalled the recovery in GE stock over the past two months. On Monday the stock received an upgrade from Bank of America that resulted in a jump, but it has since given that back. 

The safe thing to do right now would be to take a wait and see approach on GE stock until there’s more clarity around how well its turnaround strategy is working. 

On the date of publication, the InvestorPlace Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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