General Electric

General Electric Losing Altitude After Aircraft Leasing Sale

General Electric Co. (GE) is trading lower by more than 3% in Wednesday’s pre-market after AerCap Holdings Inc. (AER) announced an agreement to acquire aircraft leasing division GE Capital Aviation Services. GE will receive 111.5 million newly issued shares in the deal, along with more than $24 billion in cash, and own 46% of AER after closing the transaction. The partial merger will require regulatory approval, which is expected by the fourth quarter of 2021.

Reverse Split Approved

The GE board also approved a 1-for-8 reverse split that will lift the stock price above 100. There are currently 8.74 billion shares outstanding, with a float of 8.71 billion. The new pricing and float will make short selling more attractive, with current daily average volume at nearly 80 million shares and a short float of less than 1%. That’s a two-edged sword for future price action because bad short bets could stoke the upside.

CEO Larry Culp issued an upbeat statement after the news, noting “I remain confident we will deliver value for GE’s shareholders, employees, customers, and communities for the long term. We are excited to shift more toward offense, investing in breakthrough technologies to serve the needs of our customers and the world—for more sustainable, reliable, and affordable energy; more integrated and personalized healthcare; and smarter and more efficient flight.”

Wall Street and Technical Outlook

Wall Street consensus has improved in the last year, yielding an ‘Overweight’ rating based upon 14 ‘Buy’, 7 ‘Hold’, and no ‘Sell’ recommendations.  Price targets currently range from a low of $5.00 to a Street-high $21.00 while the stock is set to open Wednesday’s U.S. session less than $1.00 above the median $13.12 target. The bearish reaction to the deal likely reflects continued skepticism and a wait-and-see attitude about GE’s long-term outlook.

General Electric completed a double bottom last week, confirming the end of a four-year downtrend. It’s risen 255% since May 2020 and is trading above the 200-week moving average for the first time since 2017. However, the new uptrend has a long way to go because, despite progress, the stock is still situated below the .382 Fibonacci selloff retracement level. Reward: risk is turning against long positions at current levels, with major resistance between 15 and 20.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.