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Why Shares of General Electric Fell in February

By Lou Whiteman - Mar 8, 2020 at 10:34PM

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Could the coronavirus derail GE's turnaround effort?

What happened

Shares of General Electric (GE 4.70%) fell 12.6% in February, according to data from S&P Global Market Intelligence, as the company got caught up in the broader market sell-off caused by the rapidly expanding COVID-19 coronavirus outbreak. GE, like much of the industrial economy, is going to be affected by the virus and could need longer-than-expected to execute a much-needed turnaround.

So what

General Electric has had a difficult run over the past few years, with the stock losing more than 70% of its value compared with its 1990s heydays due to market-topping acquisitions and taking on too much debt. GE is on its third CEO since August 2017, but a strong finish to 2019 had investors feeling confident the company was on the right track.

That confidence fell along with the broader markets as it became clear coronavirus was going to affect not just China but the global economy as well. Many of GE's key businesses serve sectors particularly hit hard by the outbreak, including energy and airline stocks.

A front view of a plane engine.

General Electric's GEnx aerospace engine. Image source: General Electric.

The shares were also under pressure due to some comments by longtime bear Stephen Tusa of J.P. Morgan, who published a note late in the month saying that GE's higher-than-expected 2019 free cash flow was unsustainable. Whether he's right or wrong, given GE still carries more than $94 in total debt, the company can ill-afford a virus-induced prolonged downturn. 

Now what

GE shares have continued to be under pressure in early March, with Wall Street analysts picking through its early March investor day and its commentary on the expected impact from the coronavirus. Cowen analyst Gautam Khanna in a note said GE is making progress, but he sees "limited upside" in the shares right now.

The truth is that even assuming GE is finally headed in the right direction, the turnaround is going to take years to play out. There is little reason for investors to rush in quickly and buy the dip.

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