GE’s stock is soaring. But its turnaround isn’t a sure thing
Wall Street seems to believe the long-awaited General Electric comeback has finally arrived. But GE’s problems are far from over.
After a horrific performance the past two years, GE shares have spiked 20% in 2019.
GE is still trading in single-digits and it’s worth just a fraction of its all-time high. But the rally is built on hopes that the worst is over, and it places GE among the top 10% of all S<><><><><><><><><><><><><><><><><><><><><><><><> <><><><><><><><><><><><><><> <><><><><><><><><><><><><><><><><><> <><><><><><><><><><><><><><><><><><><><><><><><><><><>&P 500 stocks this year. If GE were still in the Dow (it was a href=”https://money.cnn.com/2018/06/19/investing/ge-dow-jones-walgreens/index.html” target=”_blank”kicked out last summer/a), it’d be neck-and-neck with Boeing for the top spot./ppa href=”https://www.cnn.com/2018/11/12/business/ge-stock-larry-culp/index.html” target=”_blank”New GE CEO Larry Culp/a deserves credit for taking difficult steps to fix the maker of light bulbs, jet engines and MRI machines. Under Culp, GE a href=”https://www.cnn.com/2018/10/30/investing/ge-dividend-cut-earnings-culp/index.html” target=”_blank”slashed its dividend/a to a penny, a href=”https://www.cnn.com/2018/11/13/business/ge-baker-hughes-oil/index.html” target=”_blank”sped up its divorce/a with oil-and-gas giant Baker Hughes and a href=”https://www.cnn.com/2018/11/16/business/ge-capital-debt/index.html” target=”_blank”unloaded more assets./a/ppBut GE’s earnings report, which is due out before the market opens Thursday, is likely to provide more evidence of how challenging it will be for Culp to pull off a speedy turnaround in a a href=”https://www.cnn.com/2019/01/08/business/ge-economy-debt/index.html” target=”_blank”slowing economy./a More difficult decisions loom as GE races to a href=”https://www.cnn.com/2018/11/01/investing/general-electric-debt-downgrade/index.html” target=”_blank”fix its debt-saddled balance sheet./a/pp”Larry Culp’s missionstrong /strongis to save GE, regardless of the short-term pain,” John Inch, an analyst at Gordon Haskett, told clients in a note this week. Inch, who has long been warning of trouble at GE, has a $7 price target on the stock. GE was trading above $9 on Wednesday./pp’Show about nothing’/ppWhile analysts remain bullish on GE’s booming aviation business, they are still worried that land mines lurk at the slumping power division and the remnants of GE Capital. That’s not to mention the a href=”https://www.cnn.com/2018/10/30/business/ge-investigation-justice-sec/index.html” target=”_blank”lingering investigations into GE’s accounting/a by the SEC and the Justice Department./ppJPMorgan Chase analyst C. Stephen Tusa, Jr. a longtime GE bear a href=”https://www.cnn.com/2018/12/13/investing/ge-stock-upgrade-jpmorgan/index.html” target=”_blank”helped spark the rally/a when he upgraded the stock to “neutral” last month./ppBut Tusa, who still has a $6 price target on GE, thinks the euphoria is overdone. In a research report published last week, Tusa likened the GE comeback to a “Seinfeld” episode, calling it a “show about nothing.”/ppHopes for a GE recovery, Tusa said, have been backed by “almost no hard data or tangible new news.”/ppGE Capital remains a cash drain/ppWall Street got very excited by reports that GE could unload its valuable aircraft leasing division. Sources told a href=”https://www.bloomberg.com/news/articles/2019-01-07/ge-jumps-on-news-apollo-is-weighing-bid-for-jet-leasing-business” target=”_blank”Bloomberg News/a that the business, viewed as a crown jewel of GE Capital, could fetch as much as $40 billion./ppBut Tusa believes a deal would come “well below” $40 billion and would “wipe out” all of GE Capital’s equity, which JPMorgan estimates is “already zero” because of a huge cash drain created by insurance problems./ppIn a report last week, Fitch Ratings noted that GE’s aircraft leasing division is built on less debt than GE Capital’s remaining businesses./pp”GE Capital’s overall leverage … increases the risk it could be left with excess debt as it reduces assets further,” wrote Eric Ause, Fitch’s senior director of US corporates./ppBesides GE Capital’s troubled insurance business, the finance arm has been hobbled by WMC Mortgage, a subprime mortgage unit it shuttered a decade ago./ppLast year, GE set aside $1.5 billion to cover a potential Justice Department settlement involving WMC Mortgage. GE has a href=”https://money.cnn.com/2018/05/02/investing/ge-subprime-mortgage-bankruptcy-wmc/index.html” target=”_blank”warned it could place WMC into bankruptcy./a/ppHopes for power to turn the corner/ppWall Street hopesstrong /strongfor signs of progress at GE Power, the maker of turbines for natural gas and coal power plants. The division has been a href=”https://money.cnn.com/2018/01/24/investing/ge-earnings-stock-power-fossil-fuels/index.html” target=”_blank”slammed/a by the a href=”https://www.cnn.com/2019/01/21/business/solar-wind-coal-power-renewable-energy/index.html” target=”_blank”rise of renewable energy/a. And its headaches were exacerbated by a href=”https://money.cnn.com/2018/09/20/news/companies/ge-stock-power-turbine/index.html” target=”_blank”turbine failures last year./a/ppResponding to concerns about its fossil fuels exposure, GE a href=”https://www.genewsroom.com/press-releases/ge-expands-renewable-energy-business-portfolio-accelerate-growth-improve-performance” target=”_blank”announced/a plans Wednesday to move its grid solutions and hybrid renewables units into GE Renewables./pp”This strategic realignment positions GE to lead in the fast-growing renewable energy market,” Culp said in a statement./ppInvestors are also anxious to hear more about the timing and structure of GE’s plan to a href=”https://money.cnn.com/2018/06/26/news/companies/ge-health-care-baker-hughes/index.html” target=”_blank”spin off its health care business/a, which makes MRI machines and other medical products./ppCulp has promised to bring greater transparency to GE, which has for years been criticized for a href=”https://www.cnn.com/2018/10/17/investing/general-electric-complexity-culp/index.html” target=”_blank”complexity that masked decay/a at the company./ppInch said it would be a “welcome relief” if GE gives more credible guidance after years of “perpetual exaggerations, opaque disclosure and aggressive accounting.”