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Why General Electric Stock Just Popped 5%

By Rich Smith – Jun 12, 2020 at 12:30PM

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There's reason to be optimistic about the industrial conglomerate's outlook. There's reason to be pessimistic, too.

What happened

Shares of industrial giant General Electric (GE -1.31%) snapped back from their near-9% sell-off Thursday to notch better than 5% gains in early Friday trading. As of 12:22 p.m. EDT, GE stock was up a healthy 5.4%.

But will it last?

Cartoon professor with a pointer explains why a stock arrow is rising

Image source: Getty Images.

So what

Lacking any "new" news to explain GE shares' resurgence Friday, it's logical to assume that the bounce-back is simply a reaction to Thursday's sell-off -- whether as a result of short-sellers closing their positions, or of new investors rushing in to snap up shares that had become suddenly cheaper.

Either way, this increase in the price of GE stock doesn't appear to be tied to the fortunes of GE, the company.

Now what

But here's the thing: Earlier this week there was in fact some good news for GE. To wit, in a question-and-answer session hosted on the company's investor information page, GE noted that the company is on track to resume generating positive free cash flow in 2021, and to generate "high-single-digit free cash flow margins over time."

In making this prediction, however, GE noted that achieving these goals will depend in part on the recovery of its commercial aviation business, which in turn will depend on "the pace at which commercial air traffic resumes and the rate at which airframers produce new aircraft." And in that regard, we're getting some pretty mixed signals. In an SEC filing Friday, American Airlines (AAL -1.71%) noted that "since the middle of May, the Company has observed positive net bookings" and "improving passenger demand." This is good news for GE.   

On the other hand, American also noted that it has "removed more than $13.5 billion from its operating and capital budgets for 2020," including by ordering fewer airplanes, a development that may be impacting Boeing's (BA -3.39%) decision to build fewer 737 MAX airplanes this year. And because GE builds the engines that would have gone on those now-not-to-be-built airplanes, this is bad news for GE.

If one sums up the impacts, the bad news cancels out the good -- to my Foolish eye at least -- and simply doesn't justify GE stock being up 5.4% today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
$61.91 (-1.31%) $0.82
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$12.04 (-1.71%) $0.21
The Boeing Company Stock Quote
The Boeing Company
$121.08 (-3.39%) $-4.25

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