Recent memory has turned the story of General Electric (GE.N) from classic success story to a near tragedy. Founded in the 1890s, GE is one of the oldest recognisable businesses in the world and for the majority of their existence, they were successful. They were one of the founding members of the Dow Jones Industrial average and were the only remaining founding member until they were replaced in 2018 by Walgreen Boots. 

Like many businesses, they were hurt badly by the onset of the global pandemic. Their most profitable sector at the time, GE Aviation, changed from money maker to massive money sink almost overnight. Unfortunately, this was not the sole cause and start of their problems. GE stock prices have been on a steady decline since early 2017, having never fully recovered from the 2008 financial crisis due to public, heavily scrutinised mismanagement by unpopular CEO Jeffrey Immelt.

It’s not all doom and gloom though. After Immelt’s retirement and the short-lived spell of John Flannery, GE appointed an outsider CEO for the first time in its history, Larry Culp. Well respected from his 13-year stint as Danaher CEO, Culp is generally thought to have marked an end to an extended period of poor management. While he is yet to deliver, both the mammoth size of the task and the global pandemic likely provide adequate reason for the slow turnaround.

Now with vaccine distribution underway in many major economic areas, it shouldn’t be long until the air travel industry is back up and running. Also because short flights are likely to recover before long haul, GE should have an advantage over their major rival in aerospace, Rolls Royce. Short flights tend to use smaller aircraft such as Boeing 737s and Airbus A320s, both of which use engines partly manufactured by GE. The return of 737s and A320s to the skies should return GE Aviation to profitability as revenue in both engine sales and aftermarket care returns.

In addition to this GE’s Energy sector, while relatively slow in the industry, is now devoting more resources in the shift to renewables as part of a larger restructuring of the entire company. As seen by skyrocketing share prices of “green companies” such as Tesla, going to a more environmentally friendly model can likely only be good for GE.

In conclusion, although current circumstances do not favour GE, the coming return of air travel and wider restructuring of the company are positive signs. And with GE stock at their lowest sustained value in recent memory, now may be a great time to invest in GE. While a return to the glory of the late 90s/ early 00s is not coming any time soon, positive change looks like it could be on the way.

Broker Consensus (08/02/21)

Analysts who cover this security

BofA Global Research – Andrew Obin
Deutsche Bank – Nicole DeBlase
Cowen and Company – Gautam Khanna
Oppenheimer & Co., Inc. – Christopher Glynn
RBC Capital Markets – Deane Dray
Citi – Andrew Kaplowitz
Goldman Sachs Research – Joe Ritchie
Argus Research Corporation – John Eade
William Blair & Company – Nicholas Heymann
UBS Equities – Shannon O’Callaghan
JPMorgan – Stephen Tusa, Jr
DZ Bank – Robert Czerwensky
Wolfe Research – Nigel Coe
Barclays – Julian Mitchell
Gabelli & Company – Justin Bergner
Morningstar, Inc. – Joshua Aguilar
Langenberg & Co – Brian Langenberg
Vertical Research Partners – Jeffrey Sprague
Gordon Haskett – John G. Inch
Melius Research – Scott Davis