General Electric’s stock buybacks
In 2016, General Electric (GE) paid ~$8.6 billion in dividends and bought back common stock worth $21.0 billion. In the previous year, General Electric spent $12.6 billion on dividends and stock repurchases. The ultimate objective of any stock buyback program is to increase the earnings per share by reducing outstanding equity shares. In General Electric’s case, it didn’t happen. The stock price fell too fast due to a depletion in net earnings. Even the buybacks couldn’t limit the price fall.
GE stock price trends
General Electric stock was beaten badly after the company’s investor update on November 13, 2017. General Electric’s stock price was hovering at ~$20.0 per share. The stock price was at $17.7 on December 11, 2017. It translates into a loss of ~12% of stock value after the investor update. Since the beginning of 2017, General Electric stock has lost 40% of its value. Meanwhile, we’ll compare the stock returns of General Electric’s industrial peers in 2017.
- United Technologies Corporation (UTX) returned 11.7%.
- 3M Company (MMM) returned 33.2%.
- Illinois Tool Works (ITW) returned 30%.
- Honeywell International (HON) returned 30.5%.
- Parker-Hannifin (PH) returned 35.6%.
- Boeing (BA) returned 80.2%.
During the same period, the SPDR S&P 500 ETF Trust (SPY) returned 19.2%. General Electric accounts for 0.67% of SPY.
What to expect from General Electric
Goldman Sachs analyst Joe Ritchie maintained a “neutral” rating on General Electric. He said, “Additionally, GE’s progress in Power is also a key area of debate and the company’s ability to offset end market weakness with cost-outs and show 60% FCF conversion in 2018 (vs. negative in 2017) will be a key measure in increasing confidence/believability that fundamentals can turn around by 2019/2020.”
It’s important to remember the tax reform bill, which will come into play. For a company like General Electric with worldwide operations, the tax reform bill could have a positive impact on its financials. Even though the company pays meager tax, the tax bill should result in General Electric making more investments in the US. It should aid its US industrial operations. It appears that 2018 could be a transition year for General Electric.