It has been an eventful last one month for General Electric Company (GE, Financial) with a host of big ticket announcements from the company that have sent its share price up and down. After hitting a 52-week high of $28.51 about a month ago, the stock has since lost value and is trading more than $1 lower for about three weeks now. Let us take a look at some of these announcements and keeping in mind other factors surrounding the company, we try to conclude what an investor should do with shares of the multinational corporation behemoth.
Exit from finance business
The share price of the company spiked by about 10% on the day it announced plans to sell-off of all non-core assets of its GE Capital division, the company’s financial services division. GE has made a deal with Blackstone Group LP (BX, Financial) and Wells Fargo & Company (WFC, Financial) who will take over most of GE Capital’s property business over the next two years, bringing $26.5 billion to GE. This sell-off is being done so that the company can focus on its industrial business, backed by solid R&D, and also because operating in the financial lending space comes with huge regulatory burdens. GE expects that by 2018, earnings from its industrial segment will rise to about 90% from the current 58%.
Quarterly results
Soon after the announcement of the sale of GE Capital, the company announced its results for the last quarter. What would have otherwise been a profit of $2.8 billion turned into a net loss of $13.6 billion on account of operating profits from GE Capital during the quarter. The company also announced a new share buyback plan worth $50 billion that came as music to investors’ ears. However, short term investors were unhappy with the news of dividend being frozen at current levels to the end of 2016.
Industrial strength
Currency headwinds played spoilsport to a good performance by GE’s industrial segments which saw a decrease of 1% in year over year revenues despite an organic growth of 3%. In terms of profitability, all five of the seven industrial segments turned a profit, with the exceptions being the oil and gas division and the power and water division. Keeping in mind the general performance of all companies linked to oil and energy, that is not surprising at all. Overall operating margins for the industrial segments also expanded by 120 basis points to 14.6%.
Focus on industry
GE seems to be putting its money where its mouth is. Last month, it announced that it will be using 3D printed components in the first of batch of more than 400 of its GE90 jet engines. 3D printing, or additive manufacturing, is something GE has been looking in to for some time now and this development speaks volumes about its R&D strength.
In another announcement showing its focus on its traditional strongholds, GE has announced partnering with Qualcomm Inc. (QCOM, Financial) and Apple Inc. (AAPL, Financial) for its lighting business, with the aim of developing advanced LED technology.
Conclusion
There seems to be every indication that CEO Jeff Immelt is doing what it takes to make the company into a leaner, more efficient organization and is also focusing on GE’s already existing strengths. Such moves are bound to be positive for the company in the long term, and even if there is a freeze on dividend rates for the next two years, we still recommend a BUY on this stock at current levels.
