NEW YORK, Nov 9 (Businesshala) – With General Electric’s decision to break up into three separate companies, investors who have held the stock through a long, troubled period can expect the move to underperform the group. Shares will take a hit.
The 129-year-old industrial conglomerate announced on Tuesday that it would split into three businesses, focusing on aviation, energy and healthcare.
GE shares jumped 7% after the announcement and hit their highest level since May 2018. The stock then cut its gains and was up about 3% in afternoon trading.
Once the most valuable publicly traded U.S. company, shares of GE have become increasingly less relevant in the broader stock market over the past two decades.
Here’s a closer look at GE in the markets:
In 2000, GE’s market value was around $600 billion, according to Refinitiv Datastream.
But several struggles over the years—including the 2008 financial crisis that nearly bankrupted its most profitable business, GE Capital, and subsequent plunging oil prices and issues with GE’s electricity business—saw heavy losses. Delivered. GE’s market value as of Monday was $119 billion.
While GE shares struggled, its market value was eclipsed by dozens of companies, particularly in the information technology sector. For example, Microsoft today has become the largest US company by market value, while GE is nearly 80th.
The decision to split on Tuesday came under chief executive Larry Culp, a past outsider at GE who was named to the top job three years ago to help restore the company.
GE shares continue to decline under Culp. Since he was named CEO, the stock was up about 25% as of Monday, compared to a 61% increase for the overall S&P 500 and 37% for the S&P 500 industry sector.
GE faced skepticism from more than just stockholders. It is one of the largest issuers in the corporate debt market, with about $68 billion in outstanding bonds, and bondholders have kept it on hold for much of the past decade.
Before the financial crisis, it sported a “Triple A” rating, but that episode’s long shadow has lingered on its debt ever since. Its once-prize bonds fell so far from grace that a potential downgrade to below investment grade — or junk bond — status was a common concern as recently as 2018.
Its bonds have outperformed recently – especially since the Federal Reserve took extreme measures to calm markets in the early days of the COVID-19 pandemic in March 2020, a powerful rally in riskier assets including GE’s bonds. ignited.
Whether the split is really the cure for GE shares remains to be seen. As it stands, GE shares are trading at a more expensive valuation based on a price-to-earnings ratio than industrial rivals.