Will GE's Buyback Recharge Its Share Price?


GE reportedly (GE) will buy back slightly more than $12 billion shares, although the company has not made a formal announcement or filed paperwork with the SEC. The action, as described in the Financial Times, would get GE's share-float back to 2008 levels. The conglomerate has used some of its stock for M&A activity since then. But GE is faced with the dismaying prospect that its shareholders won't care about the buyback at all.

Share buybacks and dividend increases have become more frequent recently. McDonald's (MCD) has been buying back shares for years. Target's share buyback helped its EPS last quarter.

Balance sheets of many large companies like Cisco (CSCO) and Intel (INTC) have swelled due to strong cash flow. Intel announced on May 11 that it would increase its dividend by 16%. Cisco announced its first-ever dividend on March 18. GE increased its dividend in April, the third time it had done so in a year. Other companies, of which Apple (AAPL) is the most notable, have tens of billions of dollars on balance sheets but refuse to distribute that cash, either through buybacks or dividend increases.

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In the case of GE, the buyback may mean little to its beleaguered investors. GE's market cap is $210 billion, so the reduction of shares on the market will be for only a small portion of its total market value. Further, the impact of the buyback will be muted because it will be spread over several years.

But these aren't the reasons why the buyback may generate little enthusiasm. It's often pointed out by market and industry watchers that GE's stock price hasn't risen since CEO Jeff Immelt took over from legendary businessman Jack Welch in 2001. Indeed, GE's shares are down 40% in the past five years.

No share-buyback can conceal poor performance. GE's 10-K for 2010 shows a net income of $11.6 billion. That's up very slightly from $11 billion in 2009, but down sharply from each year in the 2006 through 2008 period. A $12-billion-share buyback is not enough to offset that.

Originally published