After a disastrous 2017, General Electric Co. kicked off this year with the best start on the Dow Jones Industrial Average. The question is whether the gains will last.
With no major developments specific to the company, the shares probably got a boost from investors anticipating a rebound after last year’s selloff, said Deane Dray, an analyst with RBC Capital Markets. While that’s a welcome respite for long-suffering shareholders, GE still faces an arduous turnaround effort.
“There is this reflexive dogs-of-the-Dow bias,” Dray said. “There are still too many negatives and unknowns to give anyone the clear signs that the worst is behind them.”
GE is grappling with weakness in the markets for its power-generation and oilfield equipment, and Chief Executive Officer John Flannery is selling assets and cutting billions of dollars in costs. The manufacturer is also contending with a pension deficit and challenges from a long-term-care insurance portfolio.
But at least for the holiday-shortened first week of the year, GE gave off a faint glimmer of its former stock-market glory. Shares gained 6.2 percent, their biggest weekly increase in more than a year. That followed last year’s 45 percent plunge, which wiped out $128 billion in shareholder value and was the worst drop on the Dow.
GE is likely to rise 10 percent in the next 12 months, according to the average of analyst estimates compiled by Bloomberg. It should at least get a boost from broad economic health, said Nicholas Heymann, an analyst with William Blair & Co.
“The macro environment for the global industrial economy is shaping up in 2018 to perhaps be the best so far this century,” Heymann said in a report Thursday. Rising oil prices and strength in commercial aerospace are likely to lift sentiment for GE this year after a “horrendous 2017,” he said.
“We sense forward expectations have been taken down to the level where they can be achieved in a ‘sleep-walking’ environment,” Heymann said. Still, the turnaround “will require an endless amount of heavy lifting.”
GE still needs to demonstrate its ability to reduce its pension deficit, improve cash flow and pull off asset sales, Heymann said. Dray pointed to pending reserve charges related to long-term-care insurance as another concern. GE has been studying the impact of that on the finance business and announced that dividends paid by GE Capital to the parent would be suspended as a result.
The Boston-based manufacturer will announce its fourth-quarter earnings Jan. 24 and may provide additional details on expectations for the year.