Reverse Stock Split Has GE Trading Above $100 — What This Means for Shareholders
GE effected a 1-for-8 reverse stock split on July 30, 2021. The split adjusted shares began trading on August 2 above $100, the company announced.
The reverse split multiplied the price of the stock investors own by 8, but also reduced the number of shares they owned, by dividing the number by 8, MarketWatch reports. The pre-split-adjusted price was $12.69, according to MarketWatch.
A company may declare a reverse stock split to increase the trading price of its shares — for example, when it believes the trading price is too low to attract investors to purchase shares, or in an attempt to regain compliance with minimum bid price requirements of an exchange on which its shares trade, according to the Securities and Exchange Commission.
Reverse stock splits don’t change anything about the company’s financial condition, except to effectively increase the earnings per share as the number of shares outstanding is reduced, MarketWatch explains.
“As a result of the reverse stock split, every eight shares of GE common stock issued and outstanding or held as treasury shares were automatically combined into one share of GE common stock,” the company said in a statement. “This reduced the number of outstanding shares of GE common stock from approximately 8.8 billion to approximately 1.1 billion. Outstanding GE equity-based awards and shares or share units under GE benefit plans were proportionately adjusted.”
GE added that no fractional shares were issued in connection with the reverse stock split, and that shareholders that would hold a fractional share as a result of the reverse stock split will receive a cash payment in lieu of such fractional shares.
Colin Scarola, vice president of equity research at CFRA Research, says in a research note sent to GOBankingRates that CFRA maintains its Hold opinion on GE following the reverse split.
“We adjust our 12-month target price to $104 from $13, accounting for our revised earnings estimates and a 1-for-8 reverse stock split,” Scarola says in the note. “We remain at Hold on GE shares, with positive long-term outlooks for its high-barrier aviation and healthcare segments. But poor outlooks for its energy segments, where foreign competition has the upper hand, in our view,” he adds.
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Last updated: August 3, 2021