GE has far more shares outstanding than rivals Honeywell International and Siemens.
Sebastien Bozon/ AFP via Getty Images
General Electric said Friday that its 1 for 8 reverse stock split will happen on July 30, after the market closes, so on Monday, Aug. 2, the stock will open at around $100 a share.
That isn’t a windfall for investors. A person holding 80 shares will suddenly have 10. The total value in brokerage accounts will remain the same.
A reverse stock split is unusual for a company as large a General Electric (ticker: General Electric ). And a reverse split isn’t typically seen as a positive factor by investors, although a traditional split, such as Tesla ‘s (TSLA) 2020 move giving investors five shares for each one they had, can improve sentiment.
Academic researchers say stock splits can signal that a management team feels good about the future. There have been many papers, referencing earlier research, that try to measure extra returns following the announcement of stock splits. The results depend on the era examined, but there seems to be something to the thesis that stock splits are a positive catalyst.
Tesla stock, for its part, rose about 117% from the time of the split announcement in early August 2020 until the end of the year.
Reverse splits can have the opposite impact on investor sentiment. In the case of GE, however, the pain has already been felt. Shares were once about $60 each. The stock has lost investors about 14% a year on average for the past five years. Over the past 10, shares have a negative return as well. The S&P 500, for comparison, has earned investors about 14% and 17% a year on average over the past five and 10 years, respectively.
GE believes it is signaling something to investors, though. It could be a new era. CEO Larry Culp took over in 2018. The first CEO from outside the company, Culp was tasked with turning around operations. He has cut costs, paid down debt, sold assets, and restructured divisions. It has been a busy couple of years.
Looking ahead, GE hopes things will look more normal. That includes the share count. Right now, GE has about 8.8 billion shares outstanding, while two of its peers, Honeywell International (HON) and Siemens (SIE.Germany), have 695 million and 850 million, respectively.
Those two also have stock prices above $200 and $100 a share, respectively. The reverse split could help GE stock reach triple digits.
Investors have known about the reverse split since March. Shares are down about 4% since then. The Dow Jones Industrial Average, for comparison is up about 4% over that span. Still, GE stock is up about 18% year to date, outpacing the market.
Write to Al Root at [email protected]
