<p>Right there on page 3 of General Electric (NYSE: GE) 2019 10-K, the company informed investors that it had 205,000 global employees at the end of December, with 70,000 of the employees working in the US Over the past year, GE decreased 78,000 jobs from the workforce to increase operations and the balance sheet and the GE share moved higher in 2019 as a result.
Source: testing / Shutterstock.com
During the last eight days of trading, however, GE has lost ground every day, falling from $ 13.16 on February 12 to $ 11.32 on February 25. That is a decrease of 14%, or 1.75% per day.
GE reached a 52-week high on February 12, the highest point in the stock since October 2018. It has not traded above $ 20 since November 2017. Regardless of whether you think the number of jobs decreases, the GE share will have a hard time getting back to $ 20.
GE Skeptics is coming out
Of course, some of the declines are due to the markets implying over the ongoing increase in coronavirus cases. Still, long-standing skeptics like JPMorgan analyst Stephen Tusa do not necessarily fall for the turnaround rhetoric sold by CEO Larry Culp right now.
Reports indicate that Tusa believes that the number of employees is largely unchanged from 2018. He comes to this conclusion by excluding the 74,000 employees who are employed in their oil and gas and transport companies, which were sold in 2019. For a company facing severe problems, a 2% decrease in the number of employees could hardly be considered to reduce the cost structure.
In January, I said that I did not expect enough good news to come out of GE’s Q4 2019 results.
Almost a month away from the announcement, it is clear that the original tension from the profit emission has disappeared. The GE share increased by 7% on January 29 after announcing the result before the markets opened. But now that analysts have had time to digest 10-K, they are not shy about the problems facing GE.
In addition to saying that the number of employees is unchanged, Tusa believes that the Boeing (NYSE: BA) 737 MAX is not the only one causing its aviation problems, and finally, and probably the most important point from the analyst, is that the positive Free cash flow that it set up 2019 is a one-time thing due to restructuring and “unsustainable progress payment benefits” that have been realized during the past financial year.
If Tusa thought there was more meat on GE’s legs, he would have upgraded the stock from underweight and raised his target price above $ 5. The fact that he has not said volumes.
In the past year, GE’s shares have a total return of 6.5%, of which most of these gains come during the second half of the year when they dug themselves out of the hole it had fallen into during the summer and reached a 52-week low of $ 7.65 in August. From the low, despite an eight-day decline, GE is up by an impressive 48%.
In my opinion, the low-lying fruit has already been picked. To get to $ 20, it will take skeptics like Tusa to at least become neutral, if not bullish.
The analyst’s recent comments suggest that he will not change anytime soon.
The conclusion on GE stock
General Electric is not a stock I would buy over $ 10. It is certainly not a stock that Stephen Tusa would own. However, there are many experts who believe that CEO Larry Culp has the right things to turn the industrial conglomerate.
InvestorPlace contributor Brad Moon recently discussed a sign that Culp’s turnaround is gaining momentum. Canada’s British Columbia Investment Management Corporation (BCI), which manages $ 153.4 billion in assets for the province’s BC public sector, increased its stake in GE by 50% in the last quarter of 2019.
If it’s not a sign GE is a purchase, it’s nothing.
Of course I pull Brad’s legs. Apart from jokes, he makes an excellent point that large institutional investors such as BCI will not increase their efforts to this degree without a level of comfort in the future.
For that reason, I will not say that GE is a sale. But I can also not say that it is a two-digit buyer’s trade. If it drops back to $ 8, I may be persuaded to change my song.
At this time, I do not see $ 20 in the cards at any time in 2020 and possibly not even 2021.
Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.