Will the General Electric Company (NYSE:GE) Recover From Its Recent Crash?

November 20, 2017, 13:15 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

General Electric Company (NYSE:GE) recently announced a revised guidance for 2018, which was lower than expected, while at the same time slashing its dividend by 50%. This caused the company’s stock price to crash to new five-year lows with the question on most investors’ minds being whether the company shall recover from this crash.

Article Summary

GE recently slashed its dividend and forward guidance for 2018.

The company’s stock crashed after it announced the above changes.

Company insiders are buying shares, which bodes well for GE’s future.

Here’s the trading report on GE.

To determine whether there is hope for a company such as GE, it is important to pay attention to what company insiders are doing. If insiders are busy dumping their shares onto the open market, then it is evident that the stock might be headed lower. However, if the insiders are buying shares of the company on the open market, it means that they believe the company will turn around in the near future.

GE’s CEO, John Flannery, bought 60,000 shares of the company valued at over $1 million on Friday, which indicates a vote of confidence in the company’s future. However, this does not mean that the company will turnaround immediately given that GE has a lower institutional investor ownership percentage than many other stocks in the S&P 500.

The high number of retail shareholders in the company who were largely dependent on the quarterly dividend payouts to meet their needs are likely to sell GE shares due to the dividend cut. This means that the company might be headed lower over the short-term as retail investors sell the stock and buy other stocks with higher dividends, but the company might have better long-term prospects.

The company’s investor update on November 13, 2017 is what precipitated the crash causing Boeing Co (NYSE:BA) to briefly surpass GE as the largest US manufacturer in terms of market capitalization. GE is facing several headwinds, which John Flannery and his team must address in order to restore investor confidence in the company, which has lost massive value in the past few quarters.

The restructuring plan announced by John Flannery during the investor update might be exactly what GE needs in order to run around its fortune. According to the new plan, the company will focus on three core business units, which are aviation, healthcare and power. This means that the company is looking to divest most of its current businesses.

Some of the potential targets for sale include Baker Hughes (NYSE:BHGE), which is 60% owned by GE, as well as the company’s aircraft leasing unit, which is valued at $25 billion, among others. The sale of these businesses could generate the much-needed cash for GE’s restructuring.

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