GE stock price forecast: the bull party ended many years ago
Edited by Alexandra Pankratyeva
General Electric (GE) is among the most iconic companies in corporate America. The multinational conglomerate was founded in 1892. Four years later it became one of the 12 original companies included in the Dow Jones Industrial Average (DJIA).
Arguably, GE’s glory days took place when Jack Welch was CEO between 1981-2001. Widely considered one of the best CEOs of all time, Welch famously governed with a philosophy of “growing fast in a slow-growth economy”.
Welch was made CEO when GE was a $12bn company in 1981. The company grew into a $410bn powerhouse. But under his successor, Jeff Immelt, who left in 2017, GE shares lost 30% of their value.
Immelt’s replacement as CEO, John Flannery, left in 2018. The GE board voted to oust Flannery, leaving shareholders nursing a 50% loss.
Current CEO Lawrence “Larry” Culp Jr. inherited a mess of an organisation. He has shown some early signs of heading a long-term turnaround.
Does GE have a bruised reputation?
Under Immelt's leadership, GE invested in subprime mortgages, prior to the financial crisis of 2008. It invested $14bn in oil and gas assets amid plunging oil prices.
According to Thomas Gryta and Ted Mann’s book, Lights Out: Pride, Delusion, and the Fall of General Electric, the board didn’t “entirely understand” GE’s business and Immelt was “just fine with that”.
Immelt made use of creative accounting tactics to give the impression of impressive profits when the company was merely borrowing against future earnings.
Flannery was fired barely a year after taking over from Immelt in 2017. According to a unanimous board decision Flannery was replaced with Culp.
The company cautioned investors that it would not achieve previous profit and cash flows in 2018 on top of an accounting charge of $23bn. The business had been struggling to gain traction amid poor demand.
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GE under Culp: signs of a turnaround
To warrant a bullish GE share price forecast, investors wanted to see positive signs that the company could turn things around. Everyone was more or less on the same page that a return to former glories would take several years.
One can look at GE’s performance in 2020 for initial signs of success. Figures for Q3 2020 came in better than expected, while a 39% decline in the aviation business was partially offset by gains in the renewable energy and power units. Culp has planned for industrial free cash flow to be at least $2.5bn in Q4 and positive in 2020, stating: “While our work continues, GE’s transformation is accelerating… We remain focused on unlocking upside potential for the long-term.”
Encouragingly, in the following quarter’s report, GE announced the total company outlook for full-year 2021 of $2.5bn–$4.5bn. As the vaccine rollout gained momentum, GE’s aviation sector started to pick up, justifying stronger GE stock predictions.
The latest GE earnings: plenty to cheer for
The latest GE earnings report bodes well for continued momentum and the long-term forecast. In late July, GE reported earnings per share of five cents versus a loss of 14 cents for the same quarter a year earlier. Revenue of $18.3bn was higher on a year-over-year basis for the first time in three years.
Aviation revenue was up more than 10% year-on-year – moving higher for the first time since the end of 2019. Granted, this metric was well short of the 19% growth analysts were expecting, but it marked a move in the upward direction and justified more bullish GE stock expectations.
The General Electric stock projection was further supported by management’s move to increase its previously announced free cash flow guidance range to $3.5bn–$5bn.
While encouraging earnings reports give investors reason to consider investing in General Electric, the CEO has cautioned investors to taper back their share price analysis.
Culp acknowledged that Q2 earnings were affected by inflationary pressures, and these headwinds could increase.
Meanwhile, the General Electric stock technical analysis adds another warning sign: the 5-year chart shows a clear pattern of weakness. At current levels, the GE stock graph shows the stock is trading where it was in 2018, and it needs to more than double in value just to recapture its 2017 levels.
General Electric (GE) stock price forecast: what Wall Street is saying
A total of 20 analysts are covering General Electric stock, according to data from The Wall Street Journal. At the time of writing (5 October 2021), 11 analysts give GE stock a buy rating, while one identifies it as overweight. Another eight analysts are sitting on the sidelines with a hold rating. Not one analyst is bearish.
Most recently, J.P. Morgan’s Stephen Tusa lifted his price target on GE stock from $40 to $55, which implies a significant downside from current levels. It should be noted that Tusa has a reputation of being a “perma bear” on GE stock.
Among the 20 analysts that cover GE stock, the average price target is $122.87, which implies a roughly 16% return from current levels based on the current price of around $105 (6 October). The median price target is at $127.50.
An algorithm-based GE stock price forecast 2021-2025 made by Wallet Investor suggests the price could climb to $110.43 in one year and $130.13 within five years.
According to the Zacks outlook for GE, as of 06 October 2021: “Portfolio-restructuring program, leverage-reduction actions and a healthy liquidity position are likely to aid General Electric in the years ahead… the persistence of market-related challenges in Aviation and Renewable Energy might be concerning for the near term.”
General Electric: a value stock to watch?
Capital.com analyst Mikhail Karkhalev tells us: “GE stock could be considered a value Investment. What does this mean? Value companies are large corporations that have a rich history, a wide variety of products/services, are sustainable or, simply put, are giants. Investing in such companies is considered profitable at a time when they are down in value and are considered undervalued.
Karkhalev adds: “Since the start of 2017, General Electric shares have gone into a steep peak and have fallen from $250 to $50 amid rising losses at the company. Over the past year, as the company has recovered, even despite the pandemic, its shares have risen above $100 and are now just in the resistance range, which they are trying hard to break upwards.”
Please note that analysts can be wrong. Two of Wall Street’s most talented and educated experts can have different opinions on the same stock. For example, Tusa upgraded GE’s stock in 2020 beneath the headline: “We were wrong.”
This is why it’s important for investors to conduct their own research before making any investment decision. Investing in penny stocks tend to have a reputation of being risky, but this overlooks a simple reality. Even iconic blue-chip companies that have existed for more than 100 years such as GE can lose considerable value over a few years.
Is General Electric stock a buy?
General Electric is among the most iconic American companies. General Electric was included in the Dow Jones Industrial Index for more than 100 years before a string of poor years and questionable strategic decisions culminated in its removal from the index in 2018.
Under the leadership of current CEO Lawrence “Larry” Culp Jr, GE has improved its position, with the stock up by more than 100% over the past year. However, the share price is still down more than 50% over a five-year period. The Dow Jones Industrial Average, on the other hand, is up around 90% over the same five-year period.
Will GE stock go up?
GE stock has a lot of buying momentum on its side, as evidenced by the stock’s 100% return over the past year. Short-term investors that bought GE stock near its lows may be looking to cash in some of their profits. The rally could be running out of steam.
On the other hand, GE stock could continue to rise as shares slowly recover multi-year losses. Bulls will need to see signs of further business improvements and improved earnings in the coming quarters.
Why is General Electric stock going up?
2021 has proven to be a solid year for GE investors. Culp’s strategic decisions in 2018 are showing signs of success. The CEO divested many business units that didn’t fit in with a longer-term vision, such as GE’s lightbulb business. Doing so has put management in a better position to focus on more strategic units, including bolstering the healthcare business with the recent $1.45bn acquisition of BK Medical.
When will General Electric stock go up?
General Electric stock’s multi-year weakness looks to have ended in mid-2020. There were periods along the way where the chart showed some buying momentum, but GE continued to record lower lows.
GE stock remains a “show me story”. If management fails to live up to recent hype and show continued signs of improvement, stock could start giving back those recent gains. On the other hand, if management continues to impress investors, GE stock could continue moving higher and return to levels that investors haven’t seen since 2018.
We encourage traders to conduct a thorough analysis before making any trading decision and note that analyst forecasts can be wrong.
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