General Electric Co. (GE) - Get Report , one of the original components of the Dow Jones Industrial Average, has seen its stock fall about 7% since the beginning of the year and could be dropped from the index due to its recent poor performance, according to Deutsche Bank.
"We believe the chances that GE could be removed from the Dow are increasing as GE continues to face substantial challenges including earnings and cash pressure, tough global power generation markets, aggressive downsizing, shrinking its portfolio, management shake-up and SEC investigations," Deutsche Bank analyst John Inch wrote in a Jan. 31 research note. "Apart from GE's other challenges, as the company's absolute share price has continued to drop, GE increasingly falls into the category of outlier and consequently a likely candidate for removal."
Charles Dow created the DJIA in 1896 and the Boston-based industrial conglomerate has been a Dow mainstay for more than a century. Three members of S&P Dow Jones Indices, which is a division of S&P Global, and two representatives from The Wall Street Journal select the Dow stocks is comprised of
The committee "meets regularly" to "review pending corporate actions that may affect index constituents, statistics comparing the composition of the indices to the market, companies that are being considered as candidates for addition to an index, and any significant market events," according to the Dow Jones Averages Methodology.
The committee also reportedly prefers for the Dow to incur no more than a 10:1 ratio between the component companies' highest and lowest share prices, said Inch, adding that the ratio between Boeing, which the highest priced Dow component at about $356, and GE exceeds 20:1.
"S&P Dow Jones Indices considers information about changes to its indices and related matters to be potentially market moving and material," said Luke Shane, a communications manager for S&P Dow Jones Indices to TheStreet. "Therefore, all Index Committee discussions are confidential."
"We are focused on running the company and driving value for shareholders," a GE spokesperson said via email.
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