Shares of Boston-based General Electric, the one-time colossus of American industry dropped again this week in unusually high volume. Shares of the 126-year-old company have dropped steadily since the 50-dav average fell below the 200-day average on March 8 last year. Technical traders see the death cross as a sign of institutional momentum—on the selling side. General Electric has proven to be the second most profitable short this year earning skeptics $673 million a 36% return, behind AT&T.
General Electric is the second largest short in the U.S. Industrial Conglomerate Sector behind 3M Co. and third largest worldwide. Short interest is $1.36 billion, an increase of $123 million over the last month or 10%, and shares shorted increased by 22.5 million shares to 119.10 million shares, an increase of 23%.
John Flannery, General Electric’s new CEO has been courting Wall Street by promising to dramatically reduce debt and focusing anew on power, renewable energy, aviation, eventually spinning off healthcare. But the radical downsizing has hit some snags particularly strong pricing pressure and low domestic demand for its gas turbines. S&P Global Ratings has put GE’s A rating on negative credit watch, expecting to downgrade once the health spinoff gets completed.
Shrinking the balance sheet, spinning off divisions, while refocusing the operation represents a tall order. The latest negative “shoe to drop” has been setbacks involving malfunctioning turbine blades. One analyst assumes “weaker results” in the power division, and “some franchise value impact.” Are we looking at a $10 stock? Some think so.
Research Note written by Jack Willoughby
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Managing Director Predictive Analytics, S3 Partners, LLC
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