Will General Electric Stock Bounce By 40% Post Coronavirus?

by Trefis Team
+28.27%
Upside
6.40
Market
8.21
Trefis
GE
General Electric
Rate   |   votes   |   Share

Comparing the trend in General Electric’s stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 40% once fears surrounding the coronavirus outbreak are put to rest. Our conclusion is based on our detailed comparison of General Electric’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: General Electric Stock Compared With S&P 500.

The World Health organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31 and March 25, GE stock has lost 39% of its value (vs. about 26% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

General Electric Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

Industrial companies’ stocks generally move in tandem with the broader market trend and economic growth trends. With rapid contraction of air travel, the company’s aviation business is expected to take a hit. Boeing, one of GE’s customers, stopped making MAX aircrafts in January 2020. GE has decided to cut 10% of its U.S. work force, amid the current crisis. Also, with the coronavirus outbreak, several types of surgeries are being postponed, which will impact the company’s healthcare business. This will partly be offset by an increased demand for ventilators and patient monitors, with most of the countries facing a shortage. Overall, GE is likely to face immense pressure on its bottom line in 2020, and this also explains the sharp drop in the company’s stock price.

We believe GE’s Q1 and Q2 results will confirm this reality with a drop in revenues, primarily for its aviation business. If signs of coronavirus containment aren’t clear by the Q1 earnings timeframe, it’s likely GE’s stock, along with the broader market, is going to see continued drop when results confirm palpable reality.

GE Stock Witnessed Immense Pressure During The 2008 Downturn

We see GE stock declined from levels of around $27 in October 2007 (the pre-crisis peak) to levels of around $6 in March 2009 (as the markets bottomed out), implying GE stock lost as much as 77% from its approximate pre-crisis peak. This marked a sharper drop than the broader S&P, which fell by as much as 51%.

The GE Capital segment was the worst hit during the Great Recession, due to lack of any competitive advantage over other financial services companies. The federal government bailed out GE by injecting $139 billion.

GE stock, though, recovered strongly post the 2008 crisis, to levels of about $11 in early 2010, rising by 82% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will GE Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that GE stock has fallen by 39% this time around, compared to the 78% decline during the 2008 recession, we believe it can potentially recover by around 40% to levels of $10, once economic conditions begin to show signs of improving. This marks a partial recovery back to the $12 level GE stock was at before the coronavirus outbreak gained global momentum. 

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of industrial companies including Corning, Honeywell and 3M. The complete set of coronavirus impact and timing analyses is available here.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!