Why Is GE Stock So Low?

General Electric Company (NYSE:GE) is one of the oldest and most respected companies in the country. It was founded in the late 1800s by Thomas Edison, J.P. Morgan, and partners and grew to become a multinational conglomerate. Despite its pedigree and successes, GE stock has been a shocking performer, even before last year’s stock market crash.

So, why is GE stock so low?

To address at least the COVID part, GE has exposure in aviation, healthcare, oil, venture capital, and other hard-hit industries. The year 2020 was hard for everyone, and even analysts from founder Morgan’s namesake bank say it’s a risky investment for 2021.

It did gain some confidence after the election results were counted and certified, but there’s a long road ahead. Let’s flip the switch to shine a light on how this once-beloved American icon is getting left in the dark by investors.

Like any good story, it begins with the numbers.

GE Balance Sheet Is Scary

GE already looked burdened with debt heading into the coronavirus pandemic. At the end of the 2019 calendar year, it held $266 billion in total assets with $236 billion in liabilities. Of that, $90.9 billion was in loans. By June 2020, the company announced intent to buy $9 billion in debt.

It’s also converting some of that debt and extending it to keep cash flows steady. GE’s biggest problem is the $7.8 billion in debt maturing through 2024.

While it made moves to extend loan maturity dates, it doesn’t change the company’s net debt. The weight of that debt keeps some investors from believing in the company’s long-term ability to pay returns for investors.

The company pulling back its full-year earnings forecast following the 2020 crash gave investors even less confidence in its buying power. That led to a subsequent ratings downgrade.

Ratings Downgrade

Analysts slapped GE’s debt across the board during the pandemic. In April, Standard & Poor downgraded to company to a BBB+, while its rating outlook slid from stable to negative. It hasn’t been a AAA-rated company with the S&P since 2009, and the outlook is grim for the foreseeable future.

Fitch also downgraded the company from BBB+ to BBB by mid-April, and this caused stock prices to plummet and remain strangled for much of the year. It wasn’t until November that GE investors finally saw a return to former price levels.

And that isn’t saying much – its GE share price was in a freefall since former CEO Jeff Immelt stepped down in 2017. Its once-dominant empire is being slowly dismantled to pay off debt and fines, like a $200 million SEC fine related to it failing to be transparent about failures in tis power and insurance businesses.

In fact, let’s discuss the company’s power business, because the Department of Justice still hasn’t decided whether to pursue criminal charges.

GE Oil and Gas Pressure

GE Power got into more trouble during the pandemic, as sales dropped each quarter, including 12 percent in the third quarter of 2020. Revenues for that quarter were $4.02 billion, which still represents an increase.

Both gas-based electricity and gas turbine utilization are doing well, but the American oil industry is not.

The fallout from the pandemic dropped U.S. crude oil prices into the negative for the first time in history. Although these prices did relatively well since, global market factors from oversupply to the Organization of the Petroleum Exporting Countries (OPEC) stopped any potential price spikes.

Keep in mind that this is the same GE Power business unit at the center of the 2018 investigations, along with a 2019 accusation that still hasn’t turned up much meat.

And if that wasn’t enough, the company’s best division took a hit last year when tourism came to a screeching halt.

Demand for GE Products Has Fallen

GE Aviation is by far its largest business segment, accounting for $32.8 billion in revenue in 2019, compared to less than $20.0 billion each from GE Healthcare and GE Power. But the airline industry crashed perhaps even harder than oil from the pandemic.

Major airlines shut down as airports closed due to widespread travel restrictions. This caused them to cut back on their fleets and pushed an overage into the supply chain at every company involved in aviation manufacturing.

Companies like Boeing and Rolls Royce took a brutal beating alongside GE, and it doesn’t look to get better soon. Many airlines have already announced that they are scaling back orders through 2025. This puts a growth cap on potential revenue coming into the stream.

Although GE’s Financial branch is offering $3 billion in aviation leasing through its PIMCO joint venture. And new CEO Larry Culp is doing everything he can to improve the company’s image. He’s fighting against a strong tide though, because the economy itself limits its potential.

Economic Slowdown Hurt GE

A year after tourism took a nosedive, the economy is in worse shape than ever – unemployment is high, and businesses and consumers are struggling. Whether we like it or not, economic changes are coming down the pipeline as younger generations who grew up in this era earn wealth and make financial decisions.

But GE can’t wait for all that to happen – it needs to trim down and account for reduced spending across the board. Only the Leanest Six Sigma experts can successfully navigate the recession economy.

GE has the potential because of its innovative spirit, but it also has a bad track record with success in the 21st Century.

Why Is GE Stock So Low? The Bottom Line

GE is an iconic American brand responsible for some of our country’s (and the world’s) most innovative products. In modern times, many of these inventions are in aviation, industrial, and military uses. Its diverse portfolio positions  generate revenues in one segment in order to overcome shortfalls in others.

Except when it doesn’t – the pandemic hit GE in all its market segments. It has a high level of debt, and its share prices still haven’t recovered from the scandals that rocked its c-suite in the late 2010s.

If it’s truly rehabilitated, it could emerge as a big winner from the 2020s. But it’s going to spend a lot of money to dig itself out of that hole. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.