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GE Stock Soars ~8% on Portfolio Revamp Plan

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GE’s recent stock price trend

Yesterday, General Electric (GE), the US industrial conglomerate, clocked its biggest gain in the last three years. The company’s stock price soared 7.8% on that day to close at $13.74. After sinking to its lowest intraday price since July 2009 last Thursday, the stock bounced back sharply on the management’s detailed roadmap to recovery. In the last couple of sessions, GE investors have been on quite a roller coaster ride.

Management’s revival plan

On June 25, General Electric announced that it agreed to sell its Distributed Power business to Advent International, a private equity firm, for $3.3 billion. The deal included Distributed Power’s Jenbacher and Waukesha engines, as well as production facilities in the US, Canada, and Austria. Markets were waiting for big news from the industrial giant, which came yesterday. Here are some highlights of the plan:

  • Aviation, Power, and Renewable Energy will remain GE segments.
  • GE will spin off its Healthcare segment. After the spin-off, the parent anticipates taking 20% of the profits in cash and distributing the rest to shareholders tax-free.
  • The company will exit its investment in Baker Hughes, a GE company (BHGE).
  • GE aims to strengthen its balance sheet by cutting debt by $25 billion and achieving industrial net-debt-to-EBITDA of up to 2.5x by 2020 and de-risking GE Capital.
  • The company is aiming for a leaner corporate structure with more than $500 million in savings.
  • GE gave investors a sigh of relief by planning to maintain its present quarterly cash dividend of $0.12 per share. The company hopes to achieve this through its Healthcare segment spin-off.

Peers’ year-to-date stock returns

In the wake of current US-China trade and tariff tension, industrial stocks have taken a beating. US-based big industrial companies with global operations have more to worry about in this current scenario. In 2018 so far, markets have seen two big waves where investors lost billions of dollars. Let’s compare GE’s year-to-date returns to its peers:

  • General Electric: -24%
  • Boeing (BA): 12%
  • 3M Company (MMM): -17%
  • Honeywell International (HON): -6%
  • United Technologies (UTX): -2%
  • Illinois Tool Works (ITW): -15%
  • Parker Hannifin (PH): -22%
  • Royal Philips NV (PHG): 11%

The SPDR S&P 500 ETF (SPY), a broad market indicator, has returned 2.6% since the beginning of 2018. As the above figures show, GE isn’t the only industrial major to deliver negative returns.

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