Once the most valuable company in America, General Electric is now facing a significant downturn.
In a year marked by numerous troubling milestones, GE has reached another: The renowned conglomerate now has a market value of less than $100 billion. This hasn’t occurred since March 2009, during the height of the Great Recession.
GE’s (GE) stock has plummeted by nearly two-thirds since the end of 2016, placing the company at the 59th most valuable entity in the S&P 500.
This decline is staggering. GE held the top spot in the S&P 500 as recently as 2004, when it was valued at almost $400 billion. Currently, its worth is just a fraction of Apple (AAPL), the $1 trillion market leader, and it has fallen behind Salesforce (CRM), PayPal (PYPL), and Nvidia (NVDA).
As a result of its financial troubles, GE was removed from the Dow Jones Industrial Average this summer. An original member of this prestigious index since 1896, GE had maintained its membership for 110 years.
The company’s shares have dropped by 35% this year, a result of declining profits and increasing debt. Only four companies in the S&P 500 have experienced a worse performance in 2018.
Notably, GE’s decline is occurring while the American economy and stock market are thriving. Competitors like Honeywell (HON) and United Technologies (UTX) are flourishing.
However, GE is struggling due to years of ill-timed acquisitions and unnecessary complexity, which have finally starting to take their toll. In an effort to reduce debt and reinvigorate its stock value, GE is divesting numerous business units, including its century-old railroad division, Thomas Edison’s light-bulb division, Baker Hughes, and the healthcare segment that produces MRI machines.
Recently, there has been increased selling pressure on GE’s stock as concerns grow over GE Power, the most troubled segment of the struggling conglomerate. Last week, GE acknowledged that two of its gas turbines had failed, prompting the shutdown of power plants.
These turbine issues could damage the company’s reputation and sales at a precarious moment, as GE is already facing cash constraints.
In response, GE stated that it has “identified a solution” and is collaborating with clients to “rapidly restore units to service.”
C. Stephen Tusa, Jr., an analyst at JPMorgan Chase and known as Wall Street’s most prominent GE skeptic, advised clients that the turbine failures “raise red flags” concerning GE Power.
Conversely, some analysts believe shareholders are overreacting. According to Bank of America analyst Andrew Obin, GE’s “fundamental technology is sound” and the costs for repairs are likely to be “manageable.”
UJ (New York) First published September 26, 2018: 10:32 AM ET
