General Electric Company (NYSE: GE) is flirting with new multi-year lows as investors now have less clarity than ever about where the company is headed next.
Investors hoping for a fresh start this year after a disastrous 2017 were slapped with a huge fourth-quarter charge from GE Capital this week, and the latest Wall Street rumors suggest management could soon opt to break up the company.
GE stock dropped 2.9 percent on Tuesday after the company announced it will take a $6.2 billion charge on its fourth-quarter earnings as part of an ongoing internal review of its financial services business. CEO John Flannery called the charge “deeply disappointing” as the company moves to downsize and restructure its business.
GE repeatedly missed earnings and guidance targets, cut its dividend by 50 percent and endured a string of analyst and credit downgrades in 2017.
GE stock fell another 4.7 percent on Wednesday, and was down slightly Thursday in premarket trading.
Flannery took over as CEO in August and immediately implemented a cost-cutting and restructuring plan that includes eliminating $20 billion in non-core business operations in the next couple of years and focusing primarily on aviation, power and health care.
This week, however, multiple media sources have reported that the GE restructuring will likely include a company breakup, which sources say could happen as soon as this spring. In a conference call on Tuesday, Flannery said GE’s “underlying strengths and value” are being “suppressed” by the company’s current corporate structure.
Bank of America analyst Andrew Obin says Flannery’s language suggests investors should start considering a sum-of-the-parts approach to GE’s value.
“We note that both the [Wall Street Journal] and CNBC highlighted that GE is considering various strategic options including a breakup,” Obin says. “We think that investors were disappointed by somewhat muted statements at the November analyst meeting regarding the portfolio optionality, and we think the CEO’s comments bring GE’s [sum of the parts analysis] back into focus.”
Despite the potential value that could be created via a breakup, CFRA Research analyst Jim Corridore says there are too many unknowns at the moment to make GE a viable investment.
“Given ongoing weakness in power and oil and gas and long-term restructuring activities, which has added complexity to results, we have become less positive on the shares,” Corridore says.
Bank of America has…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
